HomeMy WebLinkAbout65A - AFFORDABLE HOUSING OPTIONSREQUEST FOR
COUNCIL ACTION
CITY COUNCIL MEETING DATE:
JUNE 6, 2017
TITLE:
DISCUSSION ON FOUR AFFORDABLE
HOUSING DEVELOPMENT PROJECTS
AND OPTIONS FOR CITY FINANCIAL
ASSISTANCE
(STRATEGIC PLAN NO. 5,3C)
zvv - X'3
INTER CITY MANAG
RECOMMENDED ACTION
CLERK OF COUNCIL USE ONLY:
APPROVED
❑ As Recommended
❑ As Amended
❑ Ordinance on 1`' Reading
❑ Ordinance on od Reading
❑ Implementing Resolution
❑ Set Public Hearing For
CONTINUED TO
FILE NUMBER
As recommended by the Ad Hoc Committee, discuss the various Affordable Housing
Development projects requesting City financial assistance and seek City Council direction on
the allocation of current and available affordable housing development funds. Following are
options for City Council discussion and consideration:
A) Santa Ana Arts Collective, Meta Housing Corporation:
Option #1: Amend the project's original award by an additional amount up to $2.9
million per Keyser Marston Associates gap analysis report.
Option #2: Amend the project's original award by an additional amount up to
$1,481,215, per CSG Advisors gap analysis report. City financial
assistance to be negotiated by CSG Advisors and Meta Housing.
Option #3: Take no additional action to fund the project at this time.
B) First Street Apartments, AMCAL Multi -Housing:
Option #1: Award of affordable housing development funds for an amount up to
$8,522,740, per CSG Advisors gap analysis report.
Option #2: Award of affordable housing development funds for an amount up to
$8,795,000, per Keyser Marston Associates gap analysis report.
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Option #3: Take no additional action to fund the project at this time.
C) Aqua Housing, Community Development Partners:
Option #1: Amend the original project award with an additional 31 project -based
vouchers.
Option #2: Take no additional action to fund the project at this time.
D) Tiny Tim Plaza, Community Development Partners:
Option #1: Commit to a future award of affordable housing funds for an amount up to
$11.7 million per CSG Advisors gap analysis report. Award of funds to
follow the approval of the project by the Planning Commission and City
Council pending'the availability of funds.
Option #2: Take no action to fund the project at this time.
2. Direct staff to prepare the necessary commitment letters and loan documents for City Council
consideration at the June 20, 2017 City Council meeting or other future date.
3. Direct staff to develop a policy and criteria for the allocation of future affordable housing
development funds.
STAFF RECOMMENDATION
Staff recommends the approval of items 1A option 1, 1B option 1, 1C option 1, 1D option 1, and
items 2 and 3.
DISCUSSION
On February 21, 2017, City Council established an Ad Hoc Committee to provide
recommendations on how to move forward on affordable housing development projects in the
queue and to return to the City Council with options for consideration. The Ad Hoc Committee
met on February 28, and requested that staff seek the assistance of CSG Advisors, an
independent affordable housing development finance firm, to prepare:
• A second opinion financial gap analysis for the Santa Ana Arts Collective and First Street
Apartments projects to compare to the previously completed financial gap analysis reports
prepared by Keyser Marston Associates (KMA), and
• Financial gap analysis reports on Aqua Housing and Tiny Time Plaza affordable housing
development projects seeking City financial assistance.
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On May 17, 2017, the Ad Hoc Committee met and recommended staff bring the four projects to
City Council for discussion and seek direction based on the results of the financial gap analysis.
In addition, the Ad Hoc Committee requested that staff provide the currently available affordable
housing development funds (Exhibit 1), estimate of potential future funding, restrictions and uses
of those funds (Exhibit 2), and development schedule for each project (Exhibit 3).
Following is the description, history and status of each of the four projects seeking City financial
assistance:
Santa Ana Arts Collective, Meta Housing Corporation: 1666 North Main Street
The Santa Ana Arts Collective is an artist focused affordable housing development project that
consists of a 57 -unit adaptive reuse project to convert an existing five -story office building to
residential units and ground -floor commercial and community space. The unit mix consists of 26
one bedroom units, 14 two bedroom units and 17 three bedroom units for 30%, 50% and 60% of
the Area Median Income (AMI).
This project applied to the City for financial assistance through a competitive Request for
Proposals (RFP) process on August 21, 2015. On November 3, 2015, the City Council awarded
$4,635,000 in funding for the project from its Community Development Block Grant (CDBG
$500,000), Inclusionary Housing Funds ($1.875 million), and a pre -commitment of HOME
Investment Partnerships Program funds ($2.26 million). As conditioned in the City's approval, the
developer Meta Housing Corporation (Meta Housing) then gathered the balance of awards
projected to fully finance the project. In October 2016, the project was awarded Affordable
Housing and Sustainable Communities (AHSC) funds by the California Department of Housing
and Community Development (CA HCD). In November 2016, Meta Housing was competitively
awarded 9% Low Income Housing Tax Credits (LIHTC). Under normal circumstances a LIHTC
allocation is the final piece of financing needed for a project to move forward. However, since the
November 2016 presidential elections, anticipated federal tax reform has upended LIHTC equity
markets and resulted in a financial gap that, absent additional funds, renders the project
infeasible. On December 14, 2016, Meta Housing submitted a request for an additional $3.1 in
City funds due to the financial gap created by lower tax credit equity pricing and rising interest
rates. The request was submitted to KMA for review.
In December of 2016, City staff informed Meta Housing of other alternatives such as a hybrid 9
percentA percent tax credit structure proposed by the California Tax Credit Allocation Committee.
Meta Housing applied and was unsuccessful in securing the hybrid tax credits. On March 1, 2017,
KMA completed a financial gap analysis and determined $2,900,000 as the financial gap for the
project if the City required the Developer to defer or forgo $600,000 of the developer fee included
in the Project's budget (Exhibit 4). Later as requested by the Ad Hoc Committee, CSG Advisors
completed a second opinion financial gap analysis on May 9 and determined $1,481,215 as the
financial gap for the project if the City required Meta Housing to contribute a portion of its
developer fee to the partnership in the form of a $1 million General Partner Capital Contribution
(Exhibit 5). The developer fee would need to be negotiated.
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There are two deadlines tied to the Santa Ana Arts Collective project. The first is Meta must pull
their first building permit for the project by July 28, 2017 or they will lose their 9% LIHTC award.
The second deadline is the City will forego the $2.26 million in HOME investment Partnership
Program funds if they are not committed to the project by September 30, 2017.
First Street Apartments, AMCAL Multi -Housing: 1440 East First Street
The First Street Apartments project will provide 69 units of affordable workforce housing. The
rental units (less one manager's unit) are 100% affordable to family households earning between
30% and 60% of the AMI. The unit mix currently consists of six four-bedroom units, 28 three-
bedroom units and 35 two-bedroom units (one being a manager's unit).
This project initially applied to the City for financial assistance through a competitive RFP process
for project based vouchers (PBVs) and was awarded eight PBVs by the Housing Authority on
May 5, 2015. On February 2, 2016, the City Council approved the Planning Commissions'
recommendation to direct Heritage Village OC LLC (Heritage Village) inclusionary housing funds
to AMCAL and also directed the City Manager to lead discussions on the project. On April 15,
2016, KMA completed a financial gap analysis and determined $8,795,000 as the City's financial
assistance (Exhibit 6). On December 20, 2016, the City Council authorized the City Manager to
execute a conditional loan commitment letter with AMCAL for $2,600,000 of inclusionary housing
in -lieu fees contingent on the City's receipt of an in -lieu fee payment of $2,600,000 from Heritage
Village. In addition, the Housing Authority also authorized the drafting of loan agreements in an
amount not to exceed $6,195,000 for a total of $8,795,000 pre -committed for the project. On
February 21, 2017, staff agendized the City conditional loan and Housing loan agreements for
City Council consideration. The City Council tabled the agreements and requested that an Ad
Hoc Committee review the project as well as other projects in the queue.
As requested by the Ad Hoc Committee, CSG Advisors completed a second opinion financial gap
analysis on May 12, 2017, and determined $8,522,740 as the financial gap for the project (Exhibit
7). On May 16, 2017, AMCAL submitted a letter informing the City that Heritage Village will not be
making the initial payment of $2.6M in In -lieu fees in time for the June 28 tax credit application
deadline. The delay in payment was also confirmed by a representative from Heritage Village.
As such, AMCAL requests that the City bridge the $2.6M of in in -lieu fees with currently available
City affordable housing development funds in order to meet the tax credit application deadline.
The developer is preparing to apply for 9 percent competitive tax credits on June 28, 2017.
Aqua Housing, Community Development Partners: 317 East 17th Street
The Aqua Housing project consists of a 58 -unit new construction permanent supportive housing
development, for chronically homeless individuals with wrap-around supportive services provided
on-site by Mercy Housing Living Centers. The unit mix currently consists of 15 studio units and
43 one bedroom units for 30% and 60% of the AMI.
This project applied to the City for financial assistance through a competitive RFP process for 56
Project Based Vouchers (PBVs) on January 31, 2017. On April 4, 2017, the Housing Authority
awarded 25 project -based vouchers to the project. However, the project will need an additional
31 PBVs to be feasible and for the developer to apply for the June 28th 9 percent tax credit
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deadline. Planning staff have been reviewing the project since the approval of the initial 25 PBVs
and the City has invested resources in the required NEPA environmental review. On May 22,
the Planning Commission approved the entitlements for the project. The developer is preparing to
apply for 9 percent competitive tax credits on June 28, 2017
As requested by the Ad Hoc Committee, CSG Advisors is conducting a financial gap analysis for
affordable housing development funds in the event that the additional 31 PBV are not awarded.
Tiny Tim Plaza, Community Development Partners: 2223 West 5th Street
The Tiny Tim Plaza project consists of a 51 -unit new construction affordable housing
development targeting low-income families making 30%-60% AMI, including 5 units targeting at -
risk homeless families. This development was identified as one of the projects in the queue and
as such, on February 28, 2017, the Ad Hoc Committee requested a financial gap analysis be
conducted to determine the financial assistance for the project.
On May 18, 2017, the developer, Community Development Partners, requested that the City
commit affordable housing funds during the month of June as the commitment will provide for a
favorable outcome in the acquisition of land and closing of escrow tentatively scheduled for July.
On May 24, as requested by the Ad Hoc Committee, CSG Advisors completed the financial gap
analysis and determined $11.7 million as the financial gap for the project (Exhibit 8). The project
will apply for 4 percent non-competitive tax credits in October 2017.
Currently, the project is in planning development review and anticipated to be reviewed by the
Planning Commission on September 11, 2017. Planning staff estimates that the project will be
agendized for City Council consideration on October 3, 2017.
Additional Ad Hoc Committee Recommendations:
The Ad Hoc Committee recommended that the City Council direct staff to develop a policy and
criteria for the allocation of future affordable housing development funds. It is anticipated that
future federal funding for affordable housing may degrease requiring the City to prioritize projects
for funding. The selection criteria would include elements such as; 1) affordability, 2) number of
units, 3) operating costs to tenants, and 4) gap analysis. Upon the direction of the City Council,
staff will conduct research and prepare options and recommendations for City Council
consideration at a later date.
Regarding the availability of affordable housing development funds, the Ad Hoc recommended
that staff provide the City Council with the current available funds on hand and to estimate future
funding. As provided in the May 2, 2017 quarterly report of Housing division projects and
activities, the currently available affordable housing development funds amount is $18,661,468.
This value includes Housing Successor Agency, Inclusionary Housing, HOME program and
CDBG available funds as detailed in exhibit 1. In addition, staff estimates that the City will
receive future Inclusionary Housing Funds from the Heritage Project (est. $9.7M) and 421 N.
Harbor Blvd mixed use market -rate development project (est. $717,388). The future sale of
Housing Successor Agency properties (four developable sites) may generate an estimated $4
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million. Lastly, the allocation of 2017-18 CDBG funds for multi -family housing will provide an
additional $300,000 and is dependent on the allocation of federal funds.
STRATEGIC PLAN ALIGNMENT
Approval of this item supports the City's efforts to meet Goal #5 - Community Health, Livability,
Engagement & Sustainability, Objective #3 (Facilitate diverse housing opportunities and support
efforts to preserve and improve the livability of Santa Ana neighborhoods), Strategy C (Provide
that Santa Ana residents, employees, artists and veterans receive priority for affordable housing
created under the City's Housing Opportunity Ordinance or with City funding to the extent allowed
under state law).
FISCAL IMPACT
There is no fiscal impact associated with this item. However, the allocation of affordable housing
development funds and housing assistance payments will require City Council approval of loan
agreements and fiscal impact approval.
Robert C. Cortez
Deputy City Manager
City Manager's Office
Exhibits: 1. Available Funds for Affordable Housing Development Projects
2. Restrictions and Uses of Funds
3. Development Schedules for Affordable Housing Projects
4. KMA Analysis for the Santa Ana Arts Collective
5. CSG Advisors Analysis for the Santa Ana Arts Collective
6. KMA Analysis for the First Street Apartments
7. CSG Advisors Analysis for the First Street Apartments
8. CSG Advisors Analysis for Tiny Tim Plaza
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Exhibit 1
Available Funds for Affordable Housing Development Projects
As of March 31, 2017
Housing Successor Agency (Housing Authority)
$14,602,716 Cash on Hand
($789,853) Reconciling amount (ROPS Projects)
($338,032) Habitat for Humanity Disposition and Development Agreement
($250,000) Administrative Costs Allowance 1
$13,224,831 Available Funds
Inclusionary Housing Funds
$6,625,980 Cash on Hand 2
($2,061,381) Santa Ana Arts Collective Pre -Commitment Loan & Associated Project Costs s
($98,594) Administrative Costs Allowance (CDA/PBA)
$4,466,005 Available Funds ('Excludes $9,695,725.60 anticipated from Heritage Village)
HOME Program
$2,923,410 Funds to Drawdown
($2,260,000) Santa Ana Arts Collective Pre -Commitment Loan
($332,778) Community Housing Development Organizations (CHDO) Set -Aside 4
$330,632 Available Funds to Drawdown
CDBG Program (Acquisition/Rehabilitation Projects Only) 5
$1,140,000 Funds to Drawdown
($500,000) Santa Ana Arts Collective Pre -Commitment Loan
$640,000 Available Funds to Drawdown
$ 18,661,468 Total Available Funds
The Housing Successor Agency relies on available cash to fund the monitoring and compliance functions related to the former Redevelapmenl Agencys housing loans.
I Includes $757,600 payment from the Ventam Walk project (1506 W. 1st Street) received in March 2017.
' Pre -man amount is $1,875,000.
4 The 5332,778 includes funds currently available as noted in the February 7, 2017 City Council Agenda item 25C. An additional $171,771.60 Is estimated in future funding.
' All unencumbered funds at fiscal year end are expected to be rolled over to the Unappropriated Balance for CDBG Capital Projects in FV 17118.
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EXHIBIT 2
RESTRICTIONS AND USES OF AFFORDABLE
HOUSING FUNDS
Housina Successor Aaencv (Housing Authori
The Housing Authority assumed the role of the Housing Successor Agency to the
former Redevelopment Agency when the Redevelopment Agency was dissolved in
February 2012, which includes the funds and properties in the Low and Moderate
Income Housing Asset Fund. Funds must be used to develop, acquire, rehabilitate,
acquire long-term affordability covenants for, or preserve lower income housing (at or
below 80% of the area median income (AMI)).
At least 30% of the funds must be spent on extremely low income housing (at or below
30% AMI) and no more than 20% of the funds may be spent on housing for households
earning between 60-80% AMI. These requirements must be met over a 5 -year period. If
an agency fails to meet these requirements in any 5 -year period, at least 50% of the
funds in each fiscal year must be spent for extremely low income households until the
extremely low income target is met. If the agency exceeds the expenditure limits for
households earning between 60-80% AMI, the agency is prohibited from spending
funds on housing in that income range until the limit is met.
Units developed with these funds have the following affordability requirements: 55 -years
for rental units and 45 -years for for-sale/ownership units. Rent, affordable sales price
and income limits are determined by methodologies set by the State of California.
If the Agency has fulfilled all replacement, affordable housing production, and
monitoring, database compilation and web site publication requirements, it may spend
up to $250,000 per fiscal year on homeless prevention and rapid rehousing services.
Inclusionary Housing Funds
The City's Inclusionary Housing Ordinance prescribes the use of the monies deposited
into the Inclusionary Housing Fund, which are to "be used to increase and improve the
supply of housing affordable to Moderate, Low, Very Low and Extremely Low Income
Households in the City". Funds shall be used in accordance with the City's Housing
Element, Consolidated Plan, or subsequent plan adopted by the City Council to
construct, rehabilitate, or subsidize affordable housing or assist other government
entities, private organizations, or individuals to do so.
The Inclusionary Housing Fund may be used for the benefit of both rental and owner -
occupied housing. Eligible uses include, but are not limited to, assistance to housing
development corporations, equity participation loans, grants, pre -home ownership co -
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investment, pre -development loan funds, participation leases, or other public-private
partnership arrangements.
HOME Investment Partnerships Proaram (HOME) Funds
HOME eligible program activities include: (1) Homeowner Rehabilitation; (2) Homebuyer
Activities; (3) Rental Housing; and (4) Tenant -Based Rental Assistance (TBRA). For
affordable housing development, the City of Santa Ana provides HOME funds as a loan
to affordable housing developers, with a 3% interest rate for a 55 -year term repaid by
residual receipt payments.
HOME funds can be used for the following costs: new construction projects;
rehabilitation; reconstruction; conversion; site improvements; acquisition of property;
acquisition of vacant land; demolition; relocation costs; refinancing; capitalization of
project reserves; and project -related soft costs.
Prohibited activities and costs under the HOME program include: project reserve
accounts; TBRA for certain purposes; match for other federal programs; public housing;
acquisition of city -owned property; payment of delinquent taxes, fees, or charges; and
project -based rental assistance.
Requirements for HOME -funded projects include, but are not limited, to the following
requirements. HOME funds must be used for households at or below 80% AMI with
HOME rents determined annually by U.S. Department of Housing and Urban
Development (HUD). HOME -funded properties must meet certain minimum property
standards, which are outlined in the City's Property Standards. The HOME affordability
period is 5 to 20 years depending on the HOME assistance; however, the City's
affordability period is 55 -years for all rental projects. The City monitors these units
during the affordability period for compliance through on-site physical inspections,
review of tenant files and programmatic requirements, and annual reports. The City is
required to meet prescribed timeliness requirements to commit within 2 -years and
expend within 5 -years of receiving the HOME funds. Allocation of funds must go
through a competitive Request for Proposals (RFP) process per 24 CFR PART 85
Administrative Requirements for Grants.
Community Development Block Grant (CDBG) Funds
CDBG eligible program activities related to housing include: (1) homeowner assistance;
(2) rental rehabilitation activities; (3) homeowner rehabilitation activities; (4) housing
services in connection with the HOME Program; and (5) acquisition of existing housing.
Prohibited activities and costs under the CDBG program, as related to affordable
housing development, includes: operating and maintenance expenses, and new
housing construction projects.
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For multi -family rental housing, at least 51 % of the units must be occupied by low- or
moderate -income households. Qualified households must have incomes at or below
80% of the AMI. All CDBG-assisted rental units must bring the properties up to local
codes and standards. The City monitors rental units through on-site physical
inspections, review of tenant files and programmatic requirements, and annual reports.
Allocation of funds must go through a competitive RFP process per 24 CFR PART 85
Administrative Requirements for Grants.
Project -Based Voucher (PBV) Funds:
Project -based vouchers are a component of a public housing authority's (PHA) Housing
Choice Voucher Program. A PHA can attach up to 20 percent of its voucher assistance
to specific housing units if the owner agrees to either rehabilitate or construct the units,
or the owner agrees to set-aside a portion of the units in an existing development.
Funding for project -based vouchers comes from funds already obligated by HUD to a
PHA under its annual contributions contract (ACC). The PHA can use up to 20 percent
of its housing choice vouchers for project based vouchers.
Under the tenant -based Housing Choice Voucher Program, the PHA issues an eligible
family a voucher and the family selects a unit of its choice. If the family moves out of the
unit, the contract with the owner ends and the family can move with continued
assistance to another unit. Under the project -based voucher program, a PHA enters
into an assistance'contract with the owner for specified units and for a specified term.
The PHA refers families from its waiting list to the project owner to fill vacancies.
Because the assistance is tied to the unit, a family who moves from the project -based
unit does not have any right to continued housing assistance. However, they may be
eligible for a tenant based voucher when one becomes available. Allocation of funds
must go through a competitive RFP process per 24 § 983.51.
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EXHIBIT 3
Santa Ana Arts Collective
Project Schedule
Milestone Date
City RFP Award 11/3/2015
Escrow Land Closing Date 1/11/2016
PlanningCommission Approval of Entitlements 5/9/2016
9% Tax Credit Application Submittal 6/28/2016
19% Tax Credit Allocation Award 11/16/20161
Estimated Tax Credit Partnership Closing 7/28/2017
Estimated Construction Start 7/28/2017
Estimated Construction Completion 10/28/2018
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EXHIBIT 3
First Street Apartments
Project Schedule
Milestone Date
City Council Approval of Project Based Section 8 Vouchers 5/5/2015
Escrow Land Closing Date 8/31/2015
Planning Commission Approval of Entitlements _ 3/28/2016
Estimated 9% Tax Credit Application Submittal 6/28/2017
[ Estimated 9% Tax Credit Allocation Award 9/20/2017
Estimated Tax Credit Partnership Closing 2/28/2018
Estimated Construction Start 2/28/2018
Estimated Construction Completion 9/1/2019
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EXHIBIT 3
Aqua Housing
Project Schedule
Milestone Date
City RFP Award of 25 Project Based Vouchers 4/4/2017
Planning Commission Approval of Entitlements 5/22/2017
Estimated 9% Tax Credit Application Submittal 6/28/2017
Estimated Escrow Land Closing 6/29/2017
Estimated PBV AHAP Executed 11/15/2017
Estimated Construction Start 2/15/2018
Estimated Construction Completion 4/1/2019
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EXHIBIT 3
Tiny Tim Plaza
Project Schedule
Milestone Date
Estimated Acquisition of Property July 2017 j
Estimated Planning Commission Approval of Entitlements 9/11/2017
Estimated 4% TE Bond / LIHTC Award 12/13/2017
Estimated Tax Credit Partnership Closing 6/11/2018
Estimated Construction Start 6/11/2018
Estimated Construction Completion 9/15/2019
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MGM. kWJ
KEYSER MARSTON ASSOCIATES-
ADVISORSIN PUBLIC/PRIVATE REAL ESTATE DEVELOPMENT
MEMORANDUM
ADvIsoRS IN:
Real Estate To: Judson Brown, Housing Division Manager
Redevelopment
Affordable Housing City of Santa Ana
Economic Development
SAN FBANciSCO
A. Jerry Keyser From: Kathleen Head
Timothy C. Kelly Tim Bretz
Kate Earle Funk
Debbie M. Kern
Reed T. Kawahara
David Doezema cc: Natalie Verlinich, Housing Programs Analyst
Los ANGELES
Kathleen H. Head Date: March 1, 2017
James A. Rabe
Gregory D. Soo -Hoo
Kevin E. Engstrom Subject: Santa Ana Arts Collective: Financial Gap Analysis
Julie L. Romey
SAN DIEGO
Paul C. Marra
At your request, Keyser Marston Associates, Inc. (KMA) prepared a financial gap analysis for the
Santa Ana Arts Collective project being proposed by Meta Housing Corporation (Developer).
The purpose of the KMA analysis is to quantify the maximum amount of financial assistance
necessary to provide the proposed affordable housing units.
EXECUTIVE SUMMARY
The Developer acquired an existing office building located at 1666 North Main Street (Site) and
is proposing to convert the building through adaptive reuse into a 58 -unit apartment project
(Project). Fifty-seven (57) of the units will be subject to long-term income and affordability
covenants, and one unit will be provided to an on-site manager. The Developer proposes to
target a tenant population that consists of working artist families.
Previous Financial Assistance Request
The Developer submitted an initial proposal for the Project in Fall 2015. In that proposal, the
Developer requested $4.64 million in financial assistance from the City of Santa Ana (City). KMA
reviewed the Developer's proposal and confirmed that the financial assistance request was
warranted by the Project economics at that time.
S00 SOUTH GRAND AVENUE, SUITE 1480: LOS ANGELES, CALIFORNIA 90071 % PHONE 213.622.8095
W W W.KEYSERMARSTON.COM
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1703001:SNA:TRB
19090.014.007
Judson Brown, City of Santa Ana March 1, 2017
Santa Ana Arts Collective: Financial Gap Analysis Page 2
Additional Financial Assistance Request
Between 2015 and the present, a number of factors created an additional financial gap. The
Developer estimates this gap at $3.49 million. If the City fills this increased gap, the City's total
financial assistance would be increased to $8.13 million.'
The Developer is currently pursuing to options for obtaining increased outside funding. If they
are successful, the unfunded gap will be eliminated. If additional outside funding cannot be
obtained, at a minimum, KMA recommends that the City require the Developer to defer or forgo
$600,000 of the $2.0 million Developer Fee that is included in the Project budget. This would
decrease the Project's unfunded financial gap to approximately $2.90 million. In that case, the
City's total financial assistance would equal approximately $7.54 million.
BACKGROUND
Outside Funding Sources
The following outside funding sources are proposed to be used to finance the Project:
1. A conventional permanent loan;
2. The Federal 9% Low Income Housing Tax Credits (9% Tax Credits) that are competitively
awarded by the California Tax Credit Allocation Committee (TCAC); and
3. Funding from multiple programs within the Affordable Housing and Sustainable
Communities Program (AHSC) administered by the California Department of Housing
and Community Development (HCD).
Reasons for Additional Financial Assistance Request
The Developer provided the following primary reasons for the unfunded financial gap:
Development Cost Increases
The total development costs in the Developer's Fall 2015 proposal were estimated at $26.56
million. The Developer is currently estimating the total development costs at $34.18 million,
' It is our understanding that the City has not determined the specific breakdown of City funds
that would be utilized to fulfill the Developer's financial assistance request.
1703001:SNA:TRB
19090.014.007
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Judson Brown, City of Santa Ana March 1, 2017
Santa Ana Arts Collective: Financial Gap Analysis Page 3
which equates to an approximately $7.6 million increase in development costs. The Developer
provided the following reasons for the increase in development costs:
1. The Project includes the acquisition of an existing office building that was 50% occupied
at the time of purchase. Many of these tenants had termination options in their leases,
which the Developer did not anticipate. Relocation costs were underestimated by
approximately $828,000.
2. The AHSC Program is requiring a $1.29 million bike lane as a part of the funding
commitment that was not included in the original proposal. However, it is important to
note that the AHSC Program is providing a $1.29 million grant to off -set these costs.
3. The scope of construction necessary to convert the existing office building into a
residential use was underestimated in the original proposal.
4. Labor and materials costs have increased significantly over previous years. As a result,
current cost estimates are substantially higher than the cost estimates obtained for the
original proposal. KMA concurs with statement.
Tax Credit Equity Rate Decreases
Due to uncertainties related to prospective corporate tax changes, the financial markets are
currently experiencing substantial volatility. This uncertainty is creating direct impacts on the
Tax Credit equity markets, both in terms of demand and pricing. Given this uncertainty, Tax
Credit equity rates have dropped significantly.
The Project was previously assuming a Tax Credit equity rate of $1.07 per gross Tax Credit dollar.
Currently, the Developer is estimating the Tax Credit equity rate at $0.99 per gross Tax Credit
dollar. This estimate is validated by the fact that the majority of the projects that KMA is
currently reviewing are estimating Tax Credit equity rates between $0.95 to $1.00 per gross Tax
Credit dollar.
AHSC Program Requirements
Affordability Mix
To be more competitive for the AHSC Program, the Developer altered the affordability mix of
the original proposal to include a larger number of units restricted to extremely -low and very -
low income households. This decreased the Project's net operating income, which in turn,
decreased the conventional permanent loan that could be supported by the Project.
1703001:SNA:TRB
65A-19 19090.014.007
Judson Brown, City of Santa Ana March 1, 2017
Santa Ana Arts Collective: Financial Gap Analysis Page 4
AHSC Loan Limits
In October 2016, the Developer was awarded $7.80 million in capital funds from the AHSC
Program. However, AHSC Program Loan Limits are primarily based on the type of Tax Credits
utilized, and 9% Tax Credit projects must utilize lower loan limits than 4% Tax Credit projects.
When the Project was awarded 9% Tax Credits in November 2016, the AHSC award was reduced
by approximately $3 million —from $7.80 million to $4.90 million.
POTENTIAL FUNDING SOURCES FOR THE UNFUNDED FINANCIAL GAP
Additional Funding Sources
The Developer is pursing two options to obtain additional funding from outside funding sources.
If the Developer is successful with either of the two outside funding options, it is anticipated
that the Project will not exhibit an unfunded financial gap. As such, the Developer would not
request additional funds from the City. The two options being pursued are as follows:
9% Tax Credit /4% Tax Credit Hybrid structure
The volatility in the Tax Credit markets, and the subsequent drop in Tax Credit equity rates, have
created additional financial gaps for many Tax Credit projects. To mitigate this loss, TCAC is
proposing to create a 99,6/4% Hybrid Structure to help fund a portion of impacted projects'
financial gaps. This structure requires the developer to subdivide or legally separate a project
into two separate projects with one project receiving the awarded 9% Tax Credits and the other
project receiving a new award of 4% Tax Credits. The creation of a separate 4% Tax Credit
project generates additional Tax Credit equity. However, this structure has never been
undertaken before, and thus, there are many uncertainties regarding its viability.
The AHSC award also creates potential impediments to using this proposed hybrid Tax Credit
structure. The Developer is corresponding with HCD regarding the following issues:
1. Given that the Project would need to be legally separated into two projects, the AHSC
award would also need to be separated. HCD has no programmatic process to
accomplish this, and is uncertain if they have the flexibility to implement a new process.
2. HCD will require separate deeds of trust for the 9% project and the 4% project. The
Developer's legal counsel advised that it may be difficult to obtain approval of this
structure from HCD's legal counsel.
The Developer has not yet obtained a definitive answer from HCD as to whether this is a viable
option. If the Developer can pursue this structure, it is likely that it will produce sufficient
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Santa Ana Arts Collective: Financial Gap Analysis Page 5
additional financing to fill the Project's unfunded financial gap. In that case, the Developer
would not need any additional financial assistance from the City.
If it is determined that this structure is viable, KMA recommends re -analyzing a more finalized
version of the Developer's pro forma to ensure that the City's previous financial assistance
package is still warranted by the Project economics.
Increase in AHSC Program Funds
As discussed above, the Developer was required to utilize 9% Tax Credit Loan Limits, and
subsequently reduce the amount of the original AHSC award. However, due to the decrease in
Tax Credit equity rates being experienced by all Tax Credit projects, the Developer is working
with HCD to allow the Project to use the higher 4%Tax Credit Loan Limits rather than the 9% Tax
Credit Loan Limits. If HCD approves this request, the Project will not require additional funds
from the City.
No Additional Outside Financial Assistance
Given the uncertainty of successfully obtaining additional funding through either of the two
options outlined above, the Developer is requesting $3.49 million in additional financial
assistance from the City.
Developer Proposal
KMA analyzed the information provided by the Developer, and prepared a financial gap analysis
for the Project. The following table compares the KMA and Developer financial gap estimates
based on the assumption that no additional outside funding sources are available:
Developer
KMA
Difference
Total Development Cost $34,178,000
$34,145,000
$33,000
Available Funding Sources 30,687,000
30,694,000
($7,000)
Unfunded Financial Gap $3,491,000
$3,451,000
$40,000
As shown in the preceding table, based on the Developer's proposal, KMA estimates the
Project's unfunded financial gap at $3.45 million. Comparatively, the Developer is requesting
$3.49 million in additional financial assistance from the City. This equates to a $40,000, or less
than 1% differential, which can be considered inconsequential.
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Santa Ana Arts Collective: Financial Gap Analysis Page 6
KMA Recommendation
The Project's budget includes a $2.0 million Developer Fee, which is the maximum amount
allowed for 9% Tax Credit transactions. If the Developer is unable to obtain additional outside
funding, KMA recommends that the City require the Developer to defer or forgo the $600,000
component of this Fee that exceeds the $1.40 million that can be included in the Project's Tax
Credit eligible basis. This would decrease the Project's unfunded financial gap to approximately
$2.90 million.
The City previously committed $4.64 million to the Project. If the City grants the Developers
request for $3.49 million in additional financial assistance, the City assistance package would
total $8.13 million. If the City requires the Developer to defer or forgo $600,000 of the
Developer Fee, the City's assistance would total $7.54 million.
PROJECT DESCRIPTION
The proposed scope of development can be described as follows:
1. The Site is comprised of 1.0 acre, or 43,560 square feet of land area.
2. The 58 -unit Project represents a density of 58 units per acre.
3. The Project's unit mix is as follows:
4. The existing building is five stories in height and consists of approximately 66,800 square
feet of gross building area (GBA).
5. The existing building contains a 142 -space subterranean parking garage.
6. The Project's proposed affordability mix is as follows:
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Number of
Unit Size
Units
(SF)
One -Bedroom Units
26
550
Two -Bedroom Units
15
871
Three -Bedroom Units
17
1,252
Total / Weighted Average
58
839
4. The existing building is five stories in height and consists of approximately 66,800 square
feet of gross building area (GBA).
5. The existing building contains a 142 -space subterranean parking garage.
6. The Project's proposed affordability mix is as follows:
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Judson Brown, City of Santa Ana March 1, 2017
Santa Ana Arts Collective: Financial Gap Analysis Page 7
Low
HOME/ AHSC / Tax Credit
@
30% Median
20
Low
HOME/ AHSC / Tax Credit
@
35% Median
6
Low
HOME / AHSC / Tax Credit
@
40% Median
6
Low
HOME/ AHSC/ Tax Credit
@
60% Median
25
Unrestricted On -Site Manager's Unit
1
Total Units
FINANCIAL GAP ANALYSIS
m
KMA prepared pro forma analysis to assist in evaluating the Developer's proposal assuming that
no additional financial assistance from outside funding sources can be obtained. The analysis is
located at the end of this memorandum, and is organized as follows:
Table 1:
Estimated Development Costs
Table 2:
Stabilized Net Operating Income
Table 3:
Unfunded Financial Gap Calculation
Estimated Development Costs (Table 1)
KMA reviewed the Developer's development cost estimate, and then independently prepared a
pro forma analysis for the Project. The development cost estimates used in this analysis are as
follows:
Property Assemblage Costs
The following summarizes the property assemblage costs:
1. The purchase price for the Site was $7.20 million. The Developer submitted an appraisal
prepared by BC Valu on August 21, 2015 that estimated the market value of the Site at
$7.15 million, which is approximately equal to the purchase price.
2. The building was approximately 50% occupied with office tenants when it was acquired
by the Developer, and the Developer initially estimated the relocation costs for these
tenants at $782,000. However, the Developer has since stated that there are lease
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Judson Brown, City of Santa Ana March 1, 2017
Santa Ana Arts Collective: Financial Gap Analysis Page 8
termination options that were understated by the Developer's appraiser. The
Developer currently estimates these costs at $1.61 million.'
3. The Developer included $30,000 in closing costs.
The total property assemblage costs are estimated at $8.84 million.
Direct Costs
The direct costs estimates assume that the Project will be subject to prevailing wage
requirements. The direct costs applied in this analysis can be summarized as follows:
1. The Developer estimates the AHSC infrastructure costs at $1.29 million.
2. The Developer estimates the City -required off-site improvement costs at $1.13 million.
City staff should verify the scope and accuracy of the off-site improvements required to
serve the Project.
3. The Developer did not include a specific line item estimate for on-site improvement
costs. It is assumed these costs are included in the residential building costs line item.
4. The Developer estimates the residential building costs are estimated at $207,100 per
unit, or $12.01 million.
5. The Developer included a $275,000 allowance for furnishings, fixtures and equipment.
6. A 10% allowance for contractorfees and general requirements is provided.
7. An allowance for construction bonds / general liability insurance at 2% of construction
costs is provided.
8. A direct cost contingency allowance equal to 5% of other direct costs is provided.
KMA estimates the total direct costs at $17.26 million. This equates to $297,500 per unit.'
' The Developer provided a breakdown of relocation payments that total $1.41 million. KMA assumes
that the additional $200,000 in costs are related to administering relocation activities.
3 The Developer originally provided independently prepared cost estimates that range from $12.81 to
$15.13 million for off -sites, building, contractor and insurance costs. The Developer currently estimates
these costs at $14.36 million, however, contractors' bids have not yet been obtained for the Project.
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Santa Ana Arts Collective: Financial Gap Analysis Page 9
Indirect Costs
KMA utilized the following assumptions in estimating the indirect costs:
1. The architecture, engineering and consulting costs are estimated at 10% of direct costs.
2. The Developer estimated the public permits and fees costs at $1.40 million, or $24,080
per unit. City staff should verify the accuracy of this estimate.
3. The taxes, insurance, legal and accounting costs are estimated at 3% of direct costs.
4. An approximately $1,000 per unit allowance for marketing and leasing costs is provided.
5. The Developer Fee is set at $2.0 million, which is the maximum amount allowed for the
Project by TCAC.
6. An indirect cost contingency allowance equal to 5% of other indirect costs is provided.
KMA estimates the total indirect costs at $5.99 million.
Financing Costs
The financing costs for the Project are estimated as follows:
1. The Developer estimates the interest costs for the acquisition / predevelopment loan at
$617,000. This estimate is based on a $6.04 million loan amount, a 15 -month
predevelopment period, an 18 -month construction period, and a 5% interest rate.
2. The interest costs on the construction loan are estimated at $855,000. These costs are
based on the following assumptions:
a. The construction period interest costs are based on a 3.52% interest rate, an 18 -
month construction period, and a 60% average outstanding balance.
b. The absorption period interest costs are based on a three-month absorption
period and a 100% average outstanding balance.
The financing fees are estimated at $349,000, and are based on 1.50 points for the
construction and permanent loans.
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Santa Ana Arts Collective: Financial Gap Analysis Page 10
4. A $146,000 capitalized operating reserve is provided. This equates to three months of
operating expenses and debt service payments on the permanent loan supported by the
Project's income.
5. The Tax Credit fees are estimated at $97,000 based on the following:
a. A $2,000 application fee;
b. A $410 per unit monitoring fee; and
C. Four percent (4%) of the gross Tax Credit proceeds for one year.
KMA estimates the total financing costs at $2.06 million.
Total Development Costs
As shown in Table 1, KMA estimates the total development costs at $34.15 million, which
equates to approximately $588,700 per unit. In comparison, the Developer estimates the total
development costs at $34.18 million, or $589,300 per unit. This equates to a less than 1%
differential, which can be considered inconsequential.
Stabilized Net Operating Income
The Project's funding sources are likely to include City Housing Opportunity Ordinance (H00) in -
lieu fees, HOME Program funds, CDBG funds, AHSC funds, and 9% Tax Credits. The Project's
income and affordability standards must comport with the most stringent of the following
standards:
1. Income Restrictions: The tenants' household incomes cannot exceed the strictest of:
a. HOME Program income restrictions as defined under United States Code, Title
26, Section 142(d)(2)(B).
b. Federal Low Income Housing Tax Credits income restrictions defined under
United States Code, Title 26, Section 142(d)(2)(B).
2. Affordability Restrictions: Rents applied to all the units must reflect the most stringent
of:
a. HOME Program rents published annually by HUD; and
b. Tax Credit rents published annually by TCAC.
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Santa Ana Arts Collective: Financial Gap Analysis Page 11
Achievable Rent Income
The rents used in this analysis are based on 2016 information published by TCAC and the HOME
Program. The maximum allowable rents, net of the appropriate utility allowances, are
estimated as follows:'
4 The monthly utility allowances are estimated at: $42 for one -bedroom units; $52 for two-bedroom units;
and $79 for three-bedroom units.
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One-
Two-
Three -
Bedroom
Bedroom
Bedroom
Rent Restriction
Units
Units
Units
Low HOME / TC @ 30% Median
HOME Rents
$872
$1,045
$1,188
TCAC Rents
$506
$606
$681
Applicable Rents
$506
$606
$681
Low HOME / TC @ 35% Median
HOME Rents
$872
TCAC Rents
$598
Applicable Rents
$598
Low HOME / TC @ 40% Median
HOME Rents
$872
TCAC Rents
$689
Applicable Rents
$689
Low HOME / TC @ 60% Median
HOME Rents
$1,395
$1,584
TCAC Rents
$1,265
$1,442
Applicable Rents
$1,265
$1,442
4 The monthly utility allowances are estimated at: $42 for one -bedroom units; $52 for two-bedroom units;
and $79 for three-bedroom units.
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Santa Ana Arts Collective: Financial Gap Analysis Page 12
KMA estimates the Project's gross residential income at $639,100, which includes laundry and
miscellaneous income averaging $10 per unit per month. After applying a S% vacancy and
collection allowance, KMA estimates the resulting effective gross income at $607,100.
The residential operating expenses are estimated as follows:
1. Based on the Developer's estimates, the general operating expenses are estimated at
$5,990 per unit per year.
2. KMA assumes the Developer will apply for the property tax abatement that is accorded
to non-profit housing organizations that own and operate low income apartments. The
Developer estimates the property tax assessment overrides at $2,500 per year.
3. The Developer estimates the social services costs at $40,000 per year.
4. The AHSC Program requires mandatory annual debt service payments equal to .42% of
the Affordable Housing Capital Loan amount. The annual debt service payment is
estimated at $20,800 based on a $4.94 million loan amount.
5. The annual capital replacement reserve deposit is estimated at $600 per unit per year,
which is assumed to be a requirement of the AHSC Program.
As shown in Table 2, the residential operating expenses are estimated to total $445,500, or
approximately $7,680 per unit. When the Project's effective gross income is reduced by the
residential operating expenses, KMA estimates the stabilized net operating income at $161,600.
Available Funding Sources
The available funding sources committed to the Project can be described as follows:
Conventional Permanent Loan
To estimate the maximum permanent loan that can be supported by the Project's stabilized net
operating income, KMA assumed that the loan would be underwritten at a 117% debt service
coverage ratio, a 5.65% interest rate, and a 35 -year amortization period. Based on these
assumptions, KMA estimates that the $161,100 in stabilized net operating income can support a
$2.10 million permanent loan.
Tax Credit Proceeds
In November 2016, the Project was awarded gross Tax Credits with a value of $17.90 million
paid out over a 10 -year period. These Tax Credits are sold on the secondary market, and the net
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March 1, 2017
Page 13
syndication value is ultimately determined based on competitive market conditions and on the
timing of the disbursements. Based on currently available information, KMA and the Developer
estimate the proceeds at $0.99 per gross Tax Credit dollar. As such, the total net Tax Credit
proceeds are estimated at $17.70 million.
AHSC Program Funds
The Developer received a total of $6.26 million in funding from the AHSC Program. The specific
sources for these funds are as follows:
1. A $4.94 million AHSC Affordable Housing Capital Loan;
2. A $1.29 million AHSC Sustainable Transportation Infrastructure (STI) Grant; and
3. A $23,000 AHSC Program Activities (PRG) Grant.
Deferred Developer Fee
The Developer did not include a deferral of any portion of the Developer Fee as a funding source
forthe Project. However, KMA does not agree with this assumption, which is discussed
subsequently in this memorandum.
Previous City Commitment
The City previously committed to provide $4.64 million in financial assistance to the Project.
Total Available Funding Sources
As shown in Table 3, KMA estimates the total available funding sources at $30.69 million.
Unfunded Financial Gap Calculation
Based on the assumptions outlined in this analysis, KMA estimates the Project's financial gap as
follows:
Total Development Costs $34,145,000
(Less) Total Available Funding Sources (30,694,000)
Unfunded Financial Gap $3,451,000
Per Unit $59,500
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Santa Ana Arts Collective: Financial Gap Analysis Page 14
The Developer is requesting $3.49 million in additional financial assistance from the City, which
is $40,000 more than the unfunded financial gap identified in the KMA financial analysis. This
less than 1% differential can be considered inconsequential. As such, KMA concludes that the
Developer's request for $3.49 million in financial assistance is warranted by the Project
economics under the following assumptions:
1. No additional financial assistance from outside funding sources is available; and
2. The City does not require the Developer to defer any of the Developer Fee included in
the Project's budget.
Deferred Developer Fee
Under the TCAC regulations, the proposed Project can include a Developer Fee of up to $2.0
million in the Project's budget. However, for 9% Tax Credit projects, TCAC only allows up to
$1.40 million of the Developer Fee to be included in the Project's eligible Tax Credit basis. As
such, any amount of Developer Fee above $1.40 million does not generate Tax Credit equity for
the Project, and unless this portion of the Developer Fee is deferred, it directly adds to the
Project's financial gap.
Given the Developer's request for additional financial assistance from the City, KMA
recommends that the $600,000 of the total $2.0 million Developer Fee (the amount above $1.40
million) be deferred and repaid out of the Project's cash flow, or be given up by the Developer.
This requirement would decrease the unfunded financial gap to approximately $2.90 million,
which is approximately $600,000 less than the Developer's additional financial assistance
request.
It should be noted that the IRS requires the deferred Developer Fee to be repaid within 15 years.
If the total deferred Developer Fee is not repaid within 15 years, there will be tax ramifications
for the limited partnership that purchased the Tax Credits. KMA estimates that the Project's
cash flow supports the repayment of approximately $188,000 during the first 15 years. Thus,
the Developer may decide to do one of the following:
1. Set the Developer Fee at $2.0 million, and defer $600,000 of that Fee. In this case the
Developer and limited partner would be taking the risk that the full amount of the
deferral will not be able to be paid from the Project's cash flow within 15 years. That
will trigger tax consequences unless the Tax Credit investor and/or the Developer step in
to fund the shortfall.
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March 1, 2017
Santa Ana Arts Collective: Financial Gap Analysis Page 15
2. Set the total Developer Fee at $1,588,000, and defer $188,000 of this amount. In this
case, it is projected that sufficient cash flow will be generated within 15 years to repay
the entire deferred amount.
CONCLUSIONS
The following summarizes the conclusions KMA has derived from the preceding analysis:
1. KMA recommends that the City require the Developer to pursue additional financing
from the outside funding sources prior to approving the Developer's additional financial
assistance request. The two options identified are:
a. Pursue TCAC's 9%/4% Hybrid Structure; and
b. Pursue utilizing the AHSC 4% Tax Credit Loan Limits instead of the lower AHSC
9% Tax Credit Loan Limits.
2. If the Developer is unable to obtain additional outside funding, KMA estimates the
Project's unfunded financial gap as follows:
a. KMA recommends that the City require the Developer to defer or forgo
$600,000 of the Developer Fee included in the Project's budget. This would
decrease the warranted additional financial assistance to $2.90 million.
b. If the City does not require the Developer to defer or forgo $600,000 of the total
Developer Fee, the Developer's request for $3.49 million in additional financial
assistance would be warranted by the Project economics.
3. The City should require the Developer to produce the following documents prior to the
disbursement of any City funds:
a. The Developer should be required to produce formal contractors' bids for the
currently proposed scope of development.
b. The Developer estimated that the Project could support a $2.09 million
permanent loan. This is based on a 1.17 debt service coverage ratio and lower
than typical projected increases in management fees and social services costs.
The Developer should be required to provide evidence that $2.09 million in
permanent loan funds have been committed to the Project.
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TABLE I
ESTIMATED DEVELOPMENT COSTS
DEVELOPER PROPOSAL: $2.0 MILLION DEVELOPER FEE WITH NO DEFERRAL
SANTA ANA ARTS COLLECTIVE
SANTA ANA, CALIFORNIA
I. Property Assemblage Costs
Property Acquisition Costs
i
43,560
Sf Land
$165
/Sf Land
$7,200,000
Relocation Costs
2
1,610,000
Closing Costs
0.4%
Purchase Price
30,000
Total Property Assemblage Costs
$8,840,000
II. Direct Costs
6
AHSC Infrastructure Costs
$1,288,000
Off-site Improvements
1,126,000
On-site Improvements
43,560
Sf Land
$0
/Sf Land
0
Residential Adaptive Reuse Costs
4
58
Units
$207,100
/Unit
12,012,000
Furnishings, Fixtures & Equipment
275,000
Contractor Fees / General Requirements
10%
Construction Costs
1,443,000
Construction Bonds
2%
Construction Costs
289,000
Contingency Allowance
5%
Other Direct Costs
822,000
Total Direct Costs
58
Units
$297,500
/Unit
17,255,000
III. Indirect Costs
Arch, Eng, Consulting & Construction Mgt
30%
Direct Costs
$1,726,000
Public Permits & Fees
s
58
Units
$24,080
/Unit
1,397,000
Taxes, Insurance, Legal & Accounting
3%
Direct Costs
518,000
Marketing & Leasing
58
Units
$1,034
/Unit
60,000
Developer Fee
6
9%
Eligible Basis
2,000,000
Contingency Allowance
5%
Other Indirect Costs
285,000
Total Indirect Costs
$5,986,000
IV. Financing Costs
Interest During Construction
Predevelopment Loan
7
$617,000
Construction Loan
a
$21,128,000
Loan Amount
3.52%
Interest
855,000
Financing Fees
Construction Loan
$21,128,000
Loan Amount
1.50
Points
317,000
Permanent Loan
$2,100,000
Loan Amount
1.50
Points
32,000
Operating Reserve
3
Months Operating Expenses / Debt Service
146,000
TCAC Fees
a
97,000
PA
Total Financing Costs $2,064,000
r An appraisal prepared on August 21, 2015 by BC Valu estimates the fair market value of the property at $7,150,000.
1 Based on Developer estimate. A relocation plan was not provided for review.
' Estimates assume prevailing wage requirements will be imposed on the Project.
° Based on Developer estimate. A physical needs assessment or contractor's bid was not provided for review.
' Based on Developer estimate. The estimate should be verified by City staff.
6 This is the maximum amount allowed to be included in the Project by TCAC.
' Based on Developer estimate.
s Includes debt on the 80% of the Tax Credit Equity which will not be funded during construction. Assumes an 18 -month construction period with a
60% average outstanding balance and a 3 -month absorption period with a 100% average outstanding balance.
' Includes a $2,000 application fee; $410/unit monitoring fee; and 4% of the gross Tax Credit proceeds for one year.
Prepared by: Keyser Marston Associates, Inc. n
Filename: Meta _22617; PF_9%; trb 65A-32
TABLE 2
STABILIZED NET OPERATING INCOME
DEVELOPER PROPOSAL: $2.0 MILLION DEVELOPER FEE WITH NO DEFERRAL
SANTA ANA ARTS COLLECTIVE
SANTA ANA. CALIFORNIA
I. Gross Residential Income'
Manager's Unit
1
Unit
$0
/Unit/Month
$0
Low HOME/AHSC/TC C1 30% Median
1 -Bedroom Units @ (550-Sf)
14
Units
$506
/Unit/Month
85,000
2 -Bedroom Units @ (871-Sf)
2
Units
$606
/Unit/Month
14,500
3 -Bedroom Units @ (1,252-Sf)
4
Units
$681
/Unit/Month
32,700
Low HOME/AHSC/TC @ 35% Median
1 -Bedroom Units @ (550-Sf)
6
Units
$598
/Unit/Month
43,100
Low HOME/AHSC/TC @ 40% Median
1 -Bedroom Units @ (550-5f)
6
Units
$689
/Unit/Month
49,600
High HOME/AHSC/TC @ 60% Median
2 -Bedroom Units @ (871-Sf)
12
Units
$1,265
/Unit/Month
182,200
3 -Bedroom Units @ (1,252-Sf)
13
Units
$1,442
/Unit/Month
225,000
Laundry/Miscellaneous Income
58
Units
$10
/Unit/Month
7,000
Gross Base Income
$639,100
(Less) Vacancy & Collection Allowance
5%
Gross Base Income
(32,000)
Effective Gross Base Income
$607,100
II. Operating Expenses
General Operating Expenses
58
Units
$5,990
/Unit
$347,400
Property Taxes
58
Units
$43
/Unit
2,500
Services
58
Units
$690
/Unit
40,000
HCD Required Debt Service
0.42%
AHSC Loan Amount
20,800
Replacement Reserve
58
Units
$600
/Unit
34,800
Total Operating Expenses
$445,500
III. 1 Net Operating Income $161,600
' Based on Orange County Incomes distributed by HUD/HCD. As pertinent, the rents are based on those published in 2016 by TCAC, and the HOME
Program. Utility Allowances per the Developer: $42 for 1-Bdrm units; $52 for 2-Bdrm units; and $79 for 3-Bdrm units.
3 Based on Developer estimate. Assumes that the Developer will receive the property tax abatement accorded to non-profit housing organizations
that develop income -restricted apartments.
Prepared by: Keyser Marston Associates. Inc. w �^ ^
Filename: Meta_22517; PF 9%; trb H 33
TABLE 3
FINANCIAL GAP CALCULATION
DEVELOPER PROPOSAL: $2.0 MILLION DEVELOPER FEE WITH NO DEFERRAL
SANTA ANA ARTS COLLECTIVE
SANTA ANA, CALIFORNIA
I. Available Fundine Sources
Permanent Loan
Net Operating Income r $161,600 NO[ (See Table 2)
Income Available for Mortgage 1.17 DCR
Interest Rate 5.65% Interest Rate
Permanent Loan
Tax Credit Equity z
Gross Tax Credit Value $17,908,000
Syndication Rate $0.99 /Tax Credit Dollar
Net Tax Credit Equity
AHSC Affordable Housing Capital a
AHSC STI a
AHSC PRG s
Deferred Developer Fee a
City of Santa Ana Commitment
Total Available Funding Sources
II. Unfunded Financial Gap Calculation
Total Available Funding Sources
(Less) Total Development Costs
$137,800 Debt Service
6.56% Mortgage Constant
$2,100,000
$17,704,000
$4,944,000
$1,288,000
$23,000
$0
$4,635,000
$30,694,000
$30,694,000
(34,145,000)
Unfunded Financial Gap $3,451,000
r Assumes a 35 -year amortization term.
z Assumes an $15.9 million requested unadjusted eligible basis, which includes a $776,000 million voluntary basis reduction, a 130% difficult -to -
develop premium, a 9.0% Tax Credit rate and an applicable fraction of 100%.
a Based on Developer estimate.
Prepared by: Keyser Marston Associates, Inc. Q w
Filename: Meta_ 22517; PF_9%;it 65A-34
EXHIBIT 5
CSG I advisors 1 Post Street, Suite 575
San Francisco, CA 94104
tel. 415.956.2454
Memorandum
To: Judson Brown, City of Santa Ana
From: John Hamilton, CSG Advisors
Date: May9,2017
Re: Santa Ana Arts Collective Financial Feasibility Review
SUMMARY
Project Overview and the Proposed Project
Meta Housing proposes to develop the Santa Ana Arts Collective (the "Project"), a 58 -unit adaptive reuse
of a mid -rise building located in the City of Santa Ana (the "City"). The Project would target artists, and
would be affordable to individuals and families earning from 30% AM[ to 60% AM].
The Proposed Financing
The Developer proposes to finance the Project though funds committed through the California Housing
and Community Development's (HCD) Affordable Housing and Sustainable Communities (AHSC)
program, equity from the syndication of 9% federal Low Income Housing Tax Credits (LIHTC), and funds
from the City of Santa Ana. The Project has received an allocation of 9% LIHTC from the California Tax
Credit Allocation Committee (CTCAC) in the annual amount (for 10 yrs) of $1,790,841; a commitment of
$4,635,000 from the City of Santa Ana; and $6,254,630 of funds from AHSC.
The Developer has secured senior lender commitments from Wells Fargo (as construction lender) and
CCRC (as permanent lender).
Conclusion
The Project, as analyzed using most recent CTCAC rents and certain budget modifications as proposed
by CSG, demonstrates a financial shortfall of ($1,481,215). The City may choose to fill this financing deficit
on behalf of the Developer, or require the Developer to pursue other sources.
PROJECT FINANCIAL ANALYSIS
Project Description
Meta Housing (the "Developer"), an experienced developer of affordable housing, proposes an
"adaptive reuse" of an existing mid -rise office building. The Project, the Santa Ana Arts Collective, is
located at 1666 North Main Street, in Santa Ana. The Developer proposes to convert the building to 58
units (57 affordable units plus 1 unrestricted manager's unit). The Developer proposes to finance the
Project with an allocation of 9% low-income housing tax credits (LIHTC), committed funds from the City,
and committed funds from HCDs AHSC program.
The Developer proposes to target artists as the building's primary residents.
The Project would contain affordable units as indicated in Table 1, below.
SAN FRANCISCO ATLANTA 65A -36s ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 9, 2017
Santa Ana Arts Collective Financial Feasibility
Pace 2 of 5
Table
Restriction (AMI)
30% AM[ (/Low HOME*)
1: Proposed Units and Affordability
1 -Bedroom 2 -Bedroom 3 -Bedroom
5 2 4
Total
11
30%AMI
9
9
35%AMI
6
6
40%AMI
6
6
60% AM]
12 13
25
Manager's Unit
1
1
Total
26 15 17
58
These HOME units will be "floating" i.e., not assigned to specific units
est for Funds
In addition to the $4,635,000 funds already committed by the City, the Developer has requested
additional City financing to eliminate an expected financing deficit. The Developer's budget indicates a
financing deficit of approximately $3,500,000.
Financial Plan Analysis
We have focused our analysis on a review of the Project's sources and uses in the context of the Project's
proposed 9% tax credit financing. Table 2, below, provides a consolidated form of the Developer's
budget, and modifications proposed by CSG. In creating this analysis and variance, we have used the
Developer's assumptions (except as noted) and modeled the Project using the CTCAC application form
applicable to the existing credit reservation, updating where necessary (e.g., 2017 rents).
Table 2: Variance Analysis of Developer's Budget
USES
Budoet Item
Total Land CostNalue
Developer
$7,230,000
CSG
$7,230,000
Variance Explanation of Variance
$0
Total Acquisition Cost
$2,413,522
$2,413,522
$0
Total New Construction Costs
$13,236,620
$13,236,620
$0
Total Architectural Costs
$830,000
$830,000
$0
Total Survey and Engineering
$800,000
$800,000
$0
Total Construction Interest and Fees
$1,467,534
$1,467,534
$0
Total Permanent Financing Costs
$30,934
$37,095
$6,161 origination fee for higher loan amount
Total Attorney Costs
$205,001
$205,001
$0
Total Reserve Costs
$140,564
$140,564
$0
Total Appraisal Costs
$5,700_
$5,700
$0
Total Continaencv Cost
$1,330.262
$1,330.262
$0
CSG Iadvisors SAN FRANCISCO 65AI-AN • LOS ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 9, 2017
Santa Ana Arts Collective Financial Feasibility
Page 3 of 5
Table 2: Variance Analysis of Developer's Budget (Cont.)
Budget Item
Developer
CSG
Variance
Explanation of Variance
Developer has provided documentation
supporting $1,486,811 of Relocation costs,
Deferred Developer Fee
$3,491,484
$269,942
($3,221,542)
rather than the $1,610,00 included in the
budget. We have therefore reduced the
Total Other Costs488627
$0
JLaL5438
($123,189)
Relocation by the difference (i.e., $123,189)
Subtotal Development Costs
$32,178,764
$32,061,736
($117,028)
Federal Equity reflects $0.989 net pricing per
Developer Overhead/Profit
$2.000,000
$2.000.000
$0
developer
Notal Project Cost
$34,178,764
$34,061,736 _
($234,055J�_��
SOURCES
Increase loan amount assuming 2017 CTCAC
rents and underwriting rate of 5.65%
CCRC $2,093,389 $2,709,532 $616,143 (consistent with CCRC termsheet)
Citv of Santa Ana $4.635.000 $4,635.000 $0
AHSC $22,500 $22,500 $0
AHSC $1,288,000 $1,288,000 $0
AHSC $4.944,130 $4.944.130 $0
4FI NAN C I N G GAP _ _ ($7)_� _ ($1,481,215)
Discussion of Table 1
The "Uses" portion of Table 1 shows the Developer's budget, contrasted with necessary modifications
proposed by CSG.
• Total Permanent Financing Costs: The Developer's budget reflects origination fee of 1% (per CCRC
term sheet) of a permanent loan amount of $2,093,389. We have adjusted the fee to reflect a loan
amount of $2,709,532 (reflecting higher 2017 restricted rents as published by CTCAC). The loan
amount reflects:
➢ Effective Gross Rents $653,243 (per Developer unit mix, 2017 CTCAC rents, and 5% vacancy)
> Operatinq Expenses and Reserves ($424,875)
Cash Flow Available to Support
Debt
CSG Iadvisors SAN FRANCISCO 65Aw3Ta LOS ANGELES NEW YORK
Correction of deferred fee to net present
value of maximum 15 -year cash flow
available after asset and partnership
Deferred Developer Fee
$3,491,484
$269,942
($3,221,542)
management fees.
(Proposed) GP Contribution required to net
GP Capital Contribution
$0
$1,000,000
$1,000,000
$1 M Developer Fee
Federal Equity reflects $0.989 net pricing per
Federal Tax Credit Equity
$17,704,254
$17,711,417
$7,163 -
developer
_Total Sources
$34,178,757_
$32,580,522
($1,364,180)_
4FI NAN C I N G GAP _ _ ($7)_� _ ($1,481,215)
Discussion of Table 1
The "Uses" portion of Table 1 shows the Developer's budget, contrasted with necessary modifications
proposed by CSG.
• Total Permanent Financing Costs: The Developer's budget reflects origination fee of 1% (per CCRC
term sheet) of a permanent loan amount of $2,093,389. We have adjusted the fee to reflect a loan
amount of $2,709,532 (reflecting higher 2017 restricted rents as published by CTCAC). The loan
amount reflects:
➢ Effective Gross Rents $653,243 (per Developer unit mix, 2017 CTCAC rents, and 5% vacancy)
> Operatinq Expenses and Reserves ($424,875)
Cash Flow Available to Support
Debt
CSG Iadvisors SAN FRANCISCO 65Aw3Ta LOS ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 9, 2017
Santa Ana Arts Collective Financial Feasibility
Page 4 of 5
➢ Required MHP Debt Service 20765
➢ Available to Support First Mortgage $177,815
➢ Interest rate/Amortization Term 5.65%/35yrs
Total Other Costs: The Developer's budget includes Relocation costs of $1,610,000. However, the
Developer has provided supporting documentation for only $1,486,811. We have adjusted the cost
to reflect the supporting documentation.
The "Sources" portion of the table illustrates proposed corrections to certain of the sources.
• CCRC: We have adjusted the CCRC permanent loan to reflect the most recently released 2107
restricted rents, as illustrated below
Table 3: 2016 vs 2017 Restricted Rents
• Deferred Developer Fee: The Developer budgets shows $3.4M of deferred developer fee. The
Developer has indicated that this was intended to demonstrate the size of the financing deficit (the
project only can earn, per CTCAC restrictions, a $2M developer fee).
• General Partner (GP) Capital Contribution: CSG proposes that the Developer/GP contribute a
portion of its Developer Fee to the partnership in the form of a GP capital contribution. This amount
is subject to negotiation between the Developer and the City (and may be limited by tax concerns),
but is suggested as tool to reduce the remaining financial deficit. Based on the project's cashflows,
approximately $371,912 is available to repay of Developer Fee within 14 years. We have discounted
the annual cashflows by 4% (i.e., a risk adjustment) in order to derive a net amount of fee to be
deferred (i.e., $250,526). The suggested GP capital contribution, when subtracted from the total
Developer Fee of $2,000,000, yields the total Developer fee to be paid in cash — to be allocated
between the net present value of deferred fee paid over time and cash fee received during
development and construction. The amount of suggested GP capital contribution, therefore, equals:
' HUD, 04/2016
2 California Tax Credit Allocation Committee, April 2016
3 California Tax Credit Allocation Committee, April 2017
CSG Iadvisors SAN FRANCISCO 65AL-48 •
LOS ANGELES NEW YORK
2016 Low
Home Rent
AMI
(by bedroom
2016 CTCAC
2017 CTCAC
Utility
Bedroom Size
Restriction
onl t
Rent=
Rent'
Allowance
Net Rent
1 Bedroom
30%
$553
$548
$587
$43
$544
1 Bedroom
35%
NA
$640
$685
$43
$642
_
1 Bedroom
40%
NA
$731
$783
$43
$740
2 Bedrooms
30%
$1,097
$658
$704
$49
$655
2 Bedrooms
60%
NA
$1,316
$1,408
$49
$1,359
3 Bedrooms
30%
$1,267
$760
_ _
$813
$71
$742
3 Bedrooms
60%
NA
$1,520
$1,627
$71
$1,556
• Deferred Developer Fee: The Developer budgets shows $3.4M of deferred developer fee. The
Developer has indicated that this was intended to demonstrate the size of the financing deficit (the
project only can earn, per CTCAC restrictions, a $2M developer fee).
• General Partner (GP) Capital Contribution: CSG proposes that the Developer/GP contribute a
portion of its Developer Fee to the partnership in the form of a GP capital contribution. This amount
is subject to negotiation between the Developer and the City (and may be limited by tax concerns),
but is suggested as tool to reduce the remaining financial deficit. Based on the project's cashflows,
approximately $371,912 is available to repay of Developer Fee within 14 years. We have discounted
the annual cashflows by 4% (i.e., a risk adjustment) in order to derive a net amount of fee to be
deferred (i.e., $250,526). The suggested GP capital contribution, when subtracted from the total
Developer Fee of $2,000,000, yields the total Developer fee to be paid in cash — to be allocated
between the net present value of deferred fee paid over time and cash fee received during
development and construction. The amount of suggested GP capital contribution, therefore, equals:
' HUD, 04/2016
2 California Tax Credit Allocation Committee, April 2016
3 California Tax Credit Allocation Committee, April 2017
CSG Iadvisors SAN FRANCISCO 65AL-48 •
LOS ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 9, 2017
Santa Ana Arts Collective Financial Feasibility
Page 5 of 5
➢ Total Develooer Fee
➢ Equals Fee to be Paid in Cash (both current and deferred) $1,000,000
➢ Less
➢ Equals current Developer Fee (i.e., paid during development $749,474
process)
The deferred Fee is calculated as the net present value (NPV) of the amounts available to pay deferred developer fee
payments over 14 years, discounted at a 4% estimated cap rate for Class A multifamily properties in Santa Ana (Source:
Marcus & Millichap Multifamily Research Market Report, Fourth Quarter 2016)
Financing Deficit
Based on the Sources and Uses as adjusted by CSG, the Project financing demonstrates a ($1,481,215)
financing shortfall. The Developer must identify other financing sources — either the City or other sources,
such as Federal Home Loan Bank's Affordable Housing Program (AHP) — to alleviate the financing
shortfall.
Operating Expenses and Operating Pro Forma
The Developer proposes annual operating expenses per unit of approximately $6,725 per unit not
including reserves, and approximately $7,325 per unit including reserves. CSG has not examined specific
support for these estimates, but they appear reasonable based on our recent experience with other
projects.
The Developer's proposed operating pro forma uses standard underwriting requirements for tax -credit
and bond financing projects: annual income inflation at 2.5% and annual expense inflation of 3.5%;
vacancy of 5% annually. These underwriting assumptions along with calculated debt service on the CCRC
senior permanent mortgages results in an initial year debt service coverage (DCR) of 1.15, with increasing
DCR each year there after. The Developer's proposed operating pro forma indicates a healthy project
from an operational perspective.
CONCLUSION
The Project, as analyzed using most recent CTCAC rents and certain budget modifications as proposed
by CSG, demonstrates a financial shortfall of ($1,481,215). The City may choose to fill this financing deficit
on behalf of the Developer, or require the Developer to pursue other sources.
CSGIadvlsors SAN FRANCISCO 65A -),M LOS ANGELES NEW YORK
65A-40
EXHIBIT 6
>0911
KEYSER MARSTON ASSOCIATES,
ADVISORS IN PUBLIC/PRIVATE REAL ESTATE DEVELOPMENT
MEMORANDUM
ADVISORS IN:
Real Estate To: Natalie Verlinich, Housing Programs Analyst
Redevelopment
Affordable Housing City of Santa Ana
Economic Development
SAN FRANCISCO From:
Kathleen Head
A. Jerry Keyser
Subject: First Street Apartments: Financial Gap Analysis
Timothy C. Kelly
Tim Bretz
Kate Earle Funk
Debbie M. Kern
Reed T. Kawahara
Date:
April 15, 2016
David Doezema
At your request, Keyser Marston Associates, Inc. (KMA) prepared a financial gap analysis
Los ANGELES
Kathleen H. Head
Subject: First Street Apartments: Financial Gap Analysis
James A. Rabe
Gregory D. Soo -Hoo
Kevin E. Engstrom
Julie L. Bonney
At your request, Keyser Marston Associates, Inc. (KMA) prepared a financial gap analysis
SAN DIEGO
Paul C. Marra
for the First Street Apartments project being proposed by AMCAL Multi -Housing Inc.
(Developer). The purpose of the KMA analysis is to quantify the amount of financial
assistance necessary to provide the proposed affordable housing units.
EXECUTIVE SUMMARY
The Developer is proposing to develop the 2.15 -acre site located at 1440 East First
Street (Site) with a 69 -unit apartment project (Project). Sixty-eight (68) of the units will
be subject to long-term income and affordability covenants, and one unit will be
provided to an on-site manager.
Estimated Financial Gap
KMA conducted an independent pro forma analysis of the Project. While the KMA
analysis varied on a line -by- line item basis from the Developer's proposal, KMA's
estimate of the Project's financial gap is approximately equal to the Developer's request
for financial assistance.
500 SOUTH GRAND AVENUE, SUITE 1480: LOS ANGELES, CALIFORNIA 900711 PHONE 213.622.8095
W W W.KEYSERMARSTON.COM
65A-41
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Natalie Verlinich, City of Santa Ana April 15, 2016
First Street Apartments: Financial Gap Analysis Page 2
The following outlines the financial gap calculations derived from the KMA pro forma
analysis:
Total Development Cost $28,506,000
(Less ) Available Outside Funding Sources (19,711,000)
Estimated Financial Gap $8,795,000
As shown in the preceding table, KMA estimates the financial gap at $8.79 million. This
is $105,000 less than the Developer's request fro $8.9 million in financial assistance.
This represents a 2% differential, which can be considered insignificant. As such, KMA
concludes that the Developer's financial assistance request is necessary to provide the
proposed affordable housing units.
Available Funding Sources
KMA estimates that $19.71 million in outside funding sources are available to the
Project as follows:
1. The net operating income generated from the affordable rents supports
approximately $7.02 million in permanent financing.
2. The revenue generated from the Project -Based Section 8 rental assistance
vouchers (PBVs) provided by the Santa Ana Housing Authority (Housing
Authority) supports approximately $1.46 million in permanent financing.
The Developer anticipates receiving an allocation of 9% Federal Low Income
Housing Tax Credits (Tax Credits) that are competitively awarded by the
California Tax Credit Allocation Committee (TCAC). KMA estimates the net Tax
Credit proceeds at $11.23 million.
The Developer is requesting $8.9 million in financial assistance from the City for the
Project. The Developer intends to utilize in -lieu fee funds generated by the Housing
Opportunity Ordinance (HOO) as the funding source for this financial assistance request.
-;TO) 1X41 MR] *Yy1]I:AI[a]►1
The proposed scope of development can be described as follows:
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Natalie Verlinich, City of Santa Ana April 15, 2016
First Street Apartments: Financial Gap Analysis Page 3
1. The Site is comprised of 2.15 acres, or 93,654 square feet of land area.
2.
3
4.
a
The Project's unit mix is as follows:
Number of Unit Size
Units SF
Two -Bedroom Units 35 782
Three -Bedroom Units 28 1,031
Four -Bedroom Units 6 1,219
Total/ Weighted Average 69 921
The Project's gross building area (GBA) is estimated at 81,218 square feet, and is
comprised of the following:
a. The residential GBA is estimated at 63,549 square feet; and
b. The circulation / common area GBA is estimated at 17,669 square feet.
The Project includes 119 tuck -under parking spaces, which equates to
approximately 1.7 parking spaces per unit.
The Project's proposed affordability mix is as follows:
Very -Low Inc H&SC / Tax Credit @ 30% TC Median 1 7
Very -Low Inc H&SC / Tax Credit @ 35% TC Median 7
Very -Low Inc H&SC / Tax Credit @ 40% TC Median 7
Very -Low Inc H&SC / Tax Credit @ 45% TC Median z 7
Low Inc H&SC /Tax Credit @ 50% TC Median 7
Moderate Inc H&SC / Tax Credit @ 60% TC Median 33
Unrestricted On -Site Manager's Unit 1
Total Units 69
1 H&SC = the California Health and Safety Code, and the "Median' represents the Orange County Median
Income published by HCD. The median income published byTCAC is referred to as the TC Median.
z The Developer's rent for 2 -Bedroom units at 45% of the TC Median is higher than the H&SC Very -Low
Income rent. The Developer's pro forma should be updated to reflect the H&SC very -low income rent.
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Natalie Verlinich, City of Santa Ana April 15, 2016
First Street Apartments: Financial Gap Analysis Page 4
FINANCIAL GAP ANALYSIS
KMA prepared a pro forma analysis to assist in evaluating the Developer's proposal. The
analysis is located at the end of this memorandum, and is organized as follows:
Table 1: Estimated Development Costs
Table 2: Stabilized Net Operating Income
Table 3: Financial Gap Calculation
Estimated Development Costs (Table 1)
KMA reviewed the Developer's development cost estimates, and then independently
prepared a pro forma analysis for the Project. The resulting development costs are
estimated as follows:
Property Assemblage Costs
The total property assemblage costs are estimated at $5.47 million, and they are
comprised of the following components:
1. The proposed purchase price for the Site is $4.5 million, or $48 per square foot
of land area. The Developer submitted an appraisal prepared by Lidgard and
Associates, Inc. on January 20, 2015 to validate the purchase price. The appraisal
estimated the market value of the Site at $4.55 million, which is approximately
equal to the purchase price.
2. The Developer included a $942,000 allowance for relocation expenses. A
relocation plan prepared by Overland, Pacific & Cutler, Inc. on December 18,
2015 estimates the relocation costs at $865,000. The additional $77,000 in costs
are assumed to represent the estimated costs to implement the relocation plan.
3. The Developer included $25,000 in closing costs.
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Natalie Verlinich, City of Santa Ana April 15, 2016
First Street Apartments: Financial Gap Analysis Page 5
Direct Costs
The direct cost estimates assume that the Project will not be subject to State of
California or Federal Davis Bacon prevailing wage requirements. The direct costs
applied in this analysis are estimated at $14.38 million, and can be summarized as
follows:
1. A $550,000 allowance for remedial work and demolition costs is provided.
2. The Developer estimated the off-site improvement costs at $319,000. City staff
should verify the scope and cost of the off-site improvements required to serve
the Project.
3. The on-site improvement costs are estimated at $17 per square foot of land
area, or $1.63 million.
4. The residential shell costs are estimated at $115 per square foot of residential
GBA, or $9.34 million.
5. A $76,000 allowance for furnishings, fixtures and equipment is provided.
6. A 14% allowance for contractor fees and general requirements is provided.
7. An allowance for construction bonds / general liability insurance at 2% of
construction costs is provided.
8. A direct cost contingency allowance equal to 5% of other direct costs is provided.
Indirect Costs
KMA estimated the indirect costs at approximately $6.5 million, based on the following
assumptions:
1. The architecture, engineering and consulting costs are estimated at 10% of direct
costs.
2. The Developer estimated the public permits and fees costs at $2.2 million, or
$31,900 per unit. City staff should verify the accuracy of this estimate.
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April 15, 2016
First Street Apartments: Financial Gap Analysis Page 6
3. The taxes, insurance, legal and accounting costs are estimated at 3% of direct
costs.
4. A $1,700 per unit allowance for marketing and leasing costs is provided.
5. The Developer Fee is set at $2.0 million, which is the maximum amount allowed
for the Project by TCAC.
6. An indirect cost contingency allowance equal to 5% of other indirect costs is
provided.
Financing Costs
KMA estimated the Project's financing costs at $2.17 million. The financing cost
assumptions are as follows:
1. The Developer purchased the property in part with a $3.74 million loan from the
Low Income Investment Fund (LIIF). The estimated loan term is 30 months, and
the loan carries a 4.70% interest rate. The interest costs are estimated at
$440,000.
2. The Developer provided a $1.15 million loan to the Project to fund acquisition
and predevelopment expenses. The estimated loan term is 30 months at a
stated interest rate of 10%. However, KMA contends that the interest rate on a
loan provided by a party related to the Project should be in line with the interest
charged on similar loans. In this case, the Developer obtained a predevelopment
loan with an interest rate of 5.25%. KMA applied this same interest rate to the
Developer's $1.15 million acquisition and predevelopment loan. The interest
costs are estimated at $151,000.
3. The Developer obtained a $2.21 million predevelopment loan with a 30 -month
loan term and a 5.25910 interest rate. The interest costs are estimated at
$290,000.
4. The interest costs on the approximately $17 million construction loan are
estimated at $446,000. These costs are based on the following assumptions:
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First Street Apartments: Financial Gap Analysis Page 7
a. The interest costs incurred during the construction period are estimated
based on a 2.5% interest rate, a 16 -month construction period, and a 60%
average outstanding loan balance.
b. The absorption period interest costs are based on a three-month
absorption period and a 100% average outstanding loan balance.
The financing fees are estimated at $547,000, and are based on 1.0 point for the
LIIF acquisition loan, and 2.0 points for the construction and permanent loans.
6. A $221,000 capitalized operating reserve account is provided. This equates to
approximately three months of operating expenses and debt service payments
on the permanent loans supported by the Project's base income and PBV
income.
7. The Tax Credit fees are estimated at $71,000 based on the following:
a. A $2,000 application fee;
b. A $410 per unit monitoring fee; and
C. Four percent (4%) of gross Tax Credit proceeds for one year.
Total Development Costs
As shown in Table 1, the total development costs at $28.51 million, which equates to
approximately $413,100 per unit.
Stabilized Net Operating Income (Table 2)
The Project's funding sources include City HOO in -lieu fees, Tax Credits, and PBVs. The
Project's income and affordability standards must comport with the most stringent of
the following standards:
1. Income Restrictions: The tenants' household incomes cannot exceed the
strictest of:
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First Street Apartments: Financial Gap Analysis Page 8
a. H&SC Section 50105 for very -low income households, 50079.5 for low
income households and Section 50093 for moderate income households;
and
b. Federal Low Income Housing Tax Credits income restrictions defined
under United States Code, Title 26, Section 142(d)(2)(B).
2. Affordability Restrictions: Rents applied to all of the units must reflect the most
stringent of:
a. H&SC very -low, low and moderate income rents based on the calculation
methodology defined in Section 50053; and
b. Tax Credit rents published annually by TCAC.
Achievable Rent Income
The rents used in this analysis are based on 2016 information published by TCAC, and
2015 information published by HCD.3 The maximum allowable rents, net of the
appropriate utility allowances, are estimated as follows:°
Rent Restriction
H&SC
Rents
TCAC
Rents
Applicable
Rents
Two -Bedroom Units
VL Inc H&SC /TC @ 30%TC Median
$902
$579
$579
VL Inc H&SC/TC @ 35% TC Median
$902
$689
$689
VL Inc H&SC/TC @ 40% TC Median
$902
$799
$799
VL Inc H&SC /TC @ 45% TC Median
$902
$908
$902
Low Inc H&SC / TC @ 50% TC Median
$1,099
$1,018
$1,018
Mod Inc H&SC/TC @ 60% TC Median
$2,080
$1,238
$1,238
3 As of April 15, 2016, HCD has not yet published the 2016 household income information required to
calculate the affordable rents under H&SC Section 50053.
4 The monthly utility allowances are estimated at: $79 for two-bedroom units; $115 for three-bedroom
units; and $128 for four-bedroom units.
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First Street Apartments: Financial Gap Analysis Page 9
H&SC
Rent Restriction Rents
TCAC
Rents
Applicable
Rents
Three -Bedroom Units
Rents
Rents
VL Inc H&SC/TC @ 30%TC Median $975
$645
$645
VL Inc H&SC / TC @ 35% TC Median $975
$772
$772
Mod Inc H&SC / TC @ 60% TC Median $2,283
$1,406
$1,406
H&SC
TCAC
Applicable
Rents
Rents
Rents
Rent Restriction
Four -Bedroom Units
VL Inc H&SC /TC @ 30%TC Median $1,050
$720
$720
Mod Inc H&SC / TC @ 60% TC Median $2,463
$1,568
$1,568
The Developer is proposing that the Housing Authority provide eight PBVs to the
Project. The PBV payments are equal to the difference between the tenants' rent
payments and the fair market rents (FMRs) approved by the Housing Authority. The
2016 FMRs for the Project are as follows:
Two -Bedroom Units $1,543
Three -Bedroom Units $2,160
The PBVs are proposed to be applied as follows:
1. Three 2 -bedroom units at 30% of the TC Median;
2. Three 3 -bedroom units at 30% of the TC Median;
3. One 2 -bedroom unit at 35% of the TC Median; and
4. One 3 -bedroom unit at 35% of the TC Median.
The PBV assistance is estimated at $106,900 per year.
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Natalie Verlinich, City of Santa Ana April 15, 2016
First Street Apartments: Financial Gap Analysis Page 10
Estimated Effective Gross Income
KMA estimates the Project's effective gross income at approximately $962,100 based on
the following assumptions:
1. The base rental income is estimated at $898,300.
2. The PBV income is estimated at $106,900.
3. Laundry and miscellaneous income is estimated to average $9 per unit per
month for a total of $7,500 per year.
4. A vacancy and collection allowance equal to 5% of gross income is provided. This
equates to $50,600.
Estimated Operating Expenses
The residential operating expenses are estimated at $371,700 based on the following
assumptions:
1. The general operating expenses are estimated at $4,790 per unit per year.
2. KMA assumes the Developer will apply for the property tax abatement that is
accorded to non-profit housing organizations that own and operate apartment
units that are restricted to households earning less than 80% of the Median. The
Developer estimates that the Project will incur $2,500 per year in property tax
assessment override costs.
3. The Developer is proposing to provide social services at an estimated cost of
$18,000 per year.
4. Annual deposits to a capital replacement reserve account are estimated at $300
per unit per year. This exceeds the minimum amount required by TCAC.
Stabilized Net Operating Income
The Project's effective gross income is estimated at $962,100, and the operating
expenses are estimated at $371,700. This results in an estimated stabilized net
operating income of $590,400.
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Natalie Verlinich, City of Santa Ana April 15, 2016
First Street Apartments: Financial Gap Analysis Page 11
Financial Gap Calculation (Table 3)
Available Funding Sources
The outside funding sources anticipated to be received by the Project are estimated at
$19.71 million. These funding sources can be described as follows:
Permanent Loan — Base Net Operating Income
To estimate the maximum permanent loan that can be supported by the Project's base
income, KMA assumed that the loan would be underwritten at a 115% debt service
coverage ratio, a 5.0% interest rate, and a 35 -year amortization period. Based on these
assumptions, KMA estimates that the $488,800 in Base Net Operating Income can
support a $7.02 million permanent loan.
Permanent Loan — PBV Subsidy
To estimate the maximum permanent loan that can be supported by the eight PBVs,
KMA assumed that the loan would be underwritten at a 115% debt service coverage
ratio, a 5.0% interest rate, and a 35 -year amortization period. Based on these
assumptions, KMA estimates that the $101,600 in PBV income can support a $1.46
million permanent loan.
Tax Credit Proceeds
Tax Credit Basis
It can be assumed that the Project's eligible Tax Credit basis is equal to the lesser of the
depreciable costs for the 69 Tax Credit units, or the basis limits established by TCAC.
KMA calculated the eligible Tax Credit basis as follows:
1. The Project's depreciable costs are estimated at $20.39 million, and the
threshold basis limits applied by TCAC equal $17.67 million.
2. The threshold basis limit is less than the depreciable costs. As such, the Project's
eligible basis is set at $17.67 million.
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Natalie Verlinich, City of Santa Ana
April 15, 2016
First Street Apartments: Financial Gap Analysis Page 12
3. The Developer targeted a 46% tiebreaker score for the competitive TCAC
application process. To obtain this tiebreaker score it is necessary to reduce the
Project's requested eligible Tax Credit basis to $8.65 million.
Tax Credit Proceeds
KMA estimates the net Tax Credit proceeds at $11.23 million based on the following
assumptions:
1. KMA calculated the gross Tax Credit amount for the Project at $10.12 million
based on the following assumptions:
a. The Project is located in a designated "Difficult to Develop" census tract.
This allows the requested eligible Tax Credit basis to be increased by 30%.
The current Tax Credit regulations set the annual Tax Credit rate at 9.0%.
This rate is applied over the 10 -year Tax Credit period.
C. 100% of the Project's building area is located in units that qualify for Tax
Credits.
2. The net syndication value supported by the Tax Credit is ultimately determined
based on competitive market conditions and on the timing of the disbursements.
Based on currently available information, KMA and the Developer estimated the
proceeds at $1.11 per gross Tax Credit dollar.
Estimated Financial Gap
Based on the assumptions outlined in this analysis, KMA estimates the Project's financial
gap as follows:
Total Development Costs $28,506,000
(Less) Total Available Outside Funding Sources (19,711,000)
Financial Gap $8,795,000
Per Unit $127,500
1604007:SA;TRB
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Natalie Verlinich, City of Santa Ana April 15, 2016
First Street Apartments: Financial Gap Analysis Page 13
The Developer is requesting $8.9 million in financial assistance from the City, which is
$105,000 higher than the financial gap identified in the KMA financial analysis. This less
than 2% differential can be considered inconsequential. As such, KMA concludes that
the Developer's request for $8.9 million in financial assistance is warranted by the
Project economics.
ADDITIONAL FINANCIAL CONSIDERATIONS
Tax Credit Consideration
Approximately 40% of the Project's funding is anticipated to be derived from the receipt
of competitively awarded 9% Tax Credits. While the Project is structured to achieve the
maximum available points in the competitive process, the Tax Credit Program is
consistently oversubscribed. As a result, TCAC created an allocation process that
distributes Tax Credits on a geographical basis, and applies a tie-breaker formula in each
region. The tie-breaker calculation is weighted heavily towards the amount of outside
financial assistance as a function of the project's development costs.
The Orange County region receives funding for one or two projects in each Tax Credit
allocation round. Historically, there have not been sufficient Tax Credit dollars to fund
all the projects submitted, and thus the tie-breaker formula comes into play. As
currently structured, the Project generates a tie-breaker score of 46%. This score falls
within the range of the tie-breaker scores that have received Tax Credit awards in the
Orange County region during recent Tax Credit allocation rounds. However, the tie-
breaker scores have been volatile in Orange County, so it uncertain what tie-breaker
score will win in any Tax Credit allocation round.
Developer Fee
UnderTCAC regulations, the proposed Project qualifies for a Developer Fee of up to $2.0
million. However, it is important to note that only $1.4 million of the Developer Fee can
be included in the Project's eligible Tax Credit basis. In some cases, it would be
financially prudent to require the Developer to defer payment of $600,000 of the
Developer Fee, and to recoup those funds from the cash flow generated by the Project
over time. To test this concept, KMA prepared pro forma analyses for the Project with
and without the requirement that $600,000 of the Developer Fee be deferred. The
results of this comparative analysis indicate that given tiebreaker considerations
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Natalie Verlinich, City of Santa Ana April 15, 2016
First Street Apartments: Financial Gap Analysis Page 14
associated with the competitively awarded 9% Tax Credits, the financial gap is
approximately equal under both scenarios. As such, it is KMA's recommendation that
no Developer Fee deferral be required.
CONCLUSION
Based on the results of the preceding analysis, the Developer's request for $8.9 million
in direct financial assistance from the City is warranted by the Project economics.
1604007:SA,TRB
19090.014.001
65A-54
TABLE 1
ESTIMATED DEVELOPMENT COSTS
FIRST STREET APARTMENTS
SANTA ANA, CALIFORNIA
1. Property Assemblage Costs
Property Acquisition Costs
1
93,654 Sf Land
$48
/Sf Land
$4,500,000
Relocation Costs
r
942,000
Closing Costs
3
0.6% Purchase Price
25,000
Total Property Assemblage Costs
$5,467,000
II. Direct Costs
4
Remedial Work/Demolition
3
$550,000
Off-site Improvements
319,000
On-site Improvements
93,654 Sf Land
$17
/Sf Land
1,628,000
Residential Shell Costs
81,218 Sf GBA
$115
/Sf GBA
9,340,000
Furnishings, Fixtures & Equipment
76,000
Contractor Fees / General Rqts
14% Construction Costs
1,580,000
Construction Bonds
2% Construction Costs
226,000
Contingency Allowance
5% Other Direct Costs
658,000
Total Direct Costs
81,218 Sf GBA
$177
/Sf GBA
$14,377,000
III. Indirect Costs
Architecture, Engineering & Consulting
10% Direct Costs
$1,438,000
Public Permits & Fees
9
69 Units
$31,900
/Unit
2,201,000
Taxes, Insurance, Legal & Accounting
3% Direct Costs
431,000
Marketing & Leasing
69 Units
$1,700
/Unit
117,000
Developer Fee
6
11% Eligible Basis
2,000,000
Contingency Allowance
5% Other Indirect Costs
309,000
Total Indirect Costs
$6,496,000
IV. Financing Costs
Interest During Construction
Acquisition Loan Rl
$3,743,000 Loan Amount
4.70%
Interest
$440,000
Acquisition Loan N2
7
$1,151,000 Loan Amount
5.25%
Interest
151,000
Predevelopment Loan
$2,209,000 Loan Amount
5.25%
Interest
290,000
Construction Loan
9
$16,992,000 Loan Amount
2.50%
Interest
446,000
Financing Fees
Acquisition Loan N1
$3,743,000 Loan Amount
1.00
Points
37,000
Construction Loan
$16,992,000 Loan Amount
2.00
Points
340,000
Permanent Loan
$8,477,000 Loan Amount
2.00
Points
170,000
Operating Reserve
3 Months Operating Exp / Debt
Svc
221,000
TCAC Fees
9
71,000
Total Financing Costs
$2,166,000
V. JTotal Development Costs
69 Units
$413,100
/Unit
$28,506,000
3 Based on Developer estimate and supported by an appraisal prepared by Lidgard and Associates, Inc. on January 20, 2015.
' Based on Developer estimate. Overland, Pacific & Culter, Inc. prepared a relocation plan on December 18, 2015, and estimated the relocation
expenses at $865,000. The $77,000 in additional costs are assumed to be the estimated costs to implement the relocation plan.
3 Based on Developer estimate.
4 Estimates assume prevailing wage requirements will not be imposed on the Project.
5 Based on Developer estimate. The estimate should be verified by City staff.
6 This represents the maximum amount allowed by TCAC to be Included in the Project's total development costs.
7 The Developer provided an acquisition loan to the Project with a 10% interest rate. KMA contends that the maximum interest rate that should be
charged on this loan is 5.25% which is equal the interest rate on the predevelopment loan.
a Includes debt on the 80% of the Tax Credit Equity that will not be funded during construction. Assumes a 16 -month construction period with a 60%
average outstanding balance and a 3 -month absorption period with a 100% average outstanding balance.
9 Includes a $2,000 application fee; $410/unit monitoring fee; and 4% of the gross Tax Credit proceeds for one year.
Prepared by: Keyser Marston Associates, Inc.
Filename: AMCAL 41516;PF_9%;trb 65A-55
TABLE 2
STABILIZED NET OPERATING INCOME
FIRST STREET APARTMENTS
SANTA ANA, CALIFORNIA
I. Income
Manager's Unit
2 -Bedroom Units Cal (782-5
t
1 Unit
$0 /Unit/Month $0
VL Inc H&SC/TC @ 30% TC Median
3
Units
$579
/Unit/Month
20,800
VL Inc H&SC/TC @ 35% TC Median
6
Units
$689
/Unit/Month
49,600
VL Inc H&SC/TC @ 40% TC Median
7
Units
$799
/Unit/Month
67,100
VL Inc H&SC/TC @ 45% TC Median
7
Units
$902
/Unit/Month
75,800
Low Inc H&SC/TC @ 50% TC Median
7
Units
$1,018
/Unit/Month
85,500
Mod Inc H&SC/TC @ 60% TC Median
4
Units
$1,238
/Unit/Month
59,400
3 -Bedroom Units @ (1,031-Sf)
VL Inc H&SC/TC @ 30% TC Median
3
Units
$645
/Unit/Month
23,200
VL Inc H&SC/TC @ 35% TC Median
1
Unit
$772
/Unit/Month
9,300
Mod Inc H&SC/TC @ 60% TC Median
24
Units
$1,406
/Unit/Month
404,900
4 -Bedroom Units Cd (1.219-Sf)
VL Inc H&SC/TC @ 30% TC Median
1
Unit
$720
/Unit/Month
8,600
Mod Inc H&SC/TC @ 60% TC Median
5
Units
$1,568
/Unit/Month
94,100
PBV Subsidy z
VL Inc H&SC/TC Cal 30% TC Median
2 -Bedroom Units @ (782-5f)
3
Units
$885
/Unit/Month
31,900
3 -Bedroom Units @ (1,031-Sf)
3
Units
$1,400
/Unit/Month
50,400
VL Inc H&SC/TC @ 35% TC Median
2 -Bedroom Units @ (782-Sf)
1
Unit
$775
/Unit/Month
9,300
3 -Bedroom Units @ (1,031-5f)
1
Unit
$1,273
/Unit/Month
15,300
Laundry/Miscellaneous Income
69
Units
$9
/Unit/Month
7,500
Gross Income
$1,012,700
(Less) Vacancy & Collection Allowance
5%
Gross Base Income
(50,600)
Effective Gross Income
$962,100
IL Operating Expenses
General Operating Expenses
69
Units
$4,790
/Unit
$330,500
Property Taxes '
69
Units
$36
/Unit
2,500
Services
69
Units
$261
/Unit
18,000
Replacement Reserve
69
Units
$300
/Unit
20,700
Total Operating Expenses
69
Units
$5,400
/Unit
$371,700
III. IStabilized Net Operating Income $590,400
As pertinent, rents are based on the 2016 rents published by TCAC, and the rents calculated under H&SC Section 50053. The H&SC Section 50053
rents are calculated based on 2015 income information published by HCD. Utility Allowances per the Developer: $79 for 2-Bdrm units; $115 for 3-
Bdrm units; and $128 for 4-Bdrm units.
z The Section 8 subsidy is equal to the difference between the Fair Market Rent (FMR) established by HUD and the rent paid by the tenant.
3 Based on Developer estimate. Assumes that the Developer will receive the property tax abatement accorded to non-profit housing organizations
that own and operate apartment units that are restricted to households earning less than 80% of the County median income.
Prepared by: Keyser Marston Associates, Inc.
File name: AMCAL_41516; PF 9%; trb 65A-56
TABLE 3
FINANCIAL GAP CALCULATION
FIRST STREET APARTMENTS
SANTA ANA, CALIFORNIA
I. Available Funding Sources
Permanent Loan - Base Income
Net Operating Income
Income Available for Mortgage
Interest Rate
Permanent Loan - Base Income
Permanent Loan - PBV Subsidy
Net Operating Income
Income Available for Mortgage
Interest Rate
Permanent Loan - PBV Subsidy
Tax Credit Epuity
Gross Tax Credit Value
Syndication Rate
Net Tax Credit Equity
Deferred Developer Fee
Total Available Funding Sources
II. Financial Gap Calculation
Total Available Funding Sources
(Less) Total Development Costs
$488,845 NO1 (See Table 2)
1.15 DCR $425,100 Debt Service
5.00% Interest Rate 6.06% Mortgage Constant
$7,019,000
$101,555 EGI
1.15 DCR $88,309 Debt Service
5.00% Interest Rate 6.06% Mortgage Constant
$10,121,000
$1.11 /Tax Credit Dollar
$1,458,000
$11,234,000
$0
$19,711,000
(28,506,000)
$19,711,000
Financial Gap Calculation 69 Units $127,500 /Unit $8,795,000
III. Estimated Tie -Breaker Score
46%
r Assumes a 35 -year amortization term.
z Assumes a 35 -year amortization term.
3 Assumes an $8.7 million requested unadjusted eligible basis, which includes a $9,017,000 voluntary basis reduction, a 130% difficult -to -develop
premium, a 9.0% Tax Credit rate and an applicable fraction of 100%.
Prepared by: Keyser Marston Associates, Inc. ���_��
File name: AMCAL_41516; PF 9%; trb
65A-58
EXHIBIT 7
CSGadvisors 1PostStco,Cui94104
San Francisco, CA 94104
tel. 415.956.2454
Memorandum
To: Judson Brown, City of Santa Ana
From: John Hamilton, CSG Advisors
Date: May 12, 2017
Re: First Street Apartments Financial Feasibility Review
SUMMARY
Project Overview and the Proposed Project
AMCAL Enterprises (the "Developer") to develop the First Street Apartments (the "Project"), a 69 -unit
new construction family housing project located in the City of Santa Ana (the "City"). The Project would
target families and would be affordable to individuals and families earning from 30% AMI to 60%AMI.
The Proposed Financing
The Developer proposes to finance the Project though private senior first mortgage loans, subordinate
financing from the City of Santa Ana, and equity from the syndication of 9% federal Low Income Housing
Tax Credits (LIHTC). The Developer proposes to submit an application for an allocation of Low Income
Housing Tax Credits to the 2017 second application round of the California Tax Credit Allocation
Committee (CTCAC).
The Developer has tentative secured senior construction and permanent loan commitment from
JPMorgan CHASE Bank
Conclusion
The Project will be competing for 9% Low Income Housing Tax Credits. Absent the CTCAC particular tie
breaker - and maximum deferred developer fee -the project would not require funds from the City.
However, the nature of the CTCAC competition requires committed public funds in order to be
successful. The City must decide the level of tie-breaker it wishes to target in combination with the
amount of City funds necessary to achieve that target.
PROJECT FINANCIAL ANALYSIS
Project Description
AMCAL Enterprises (the "Developer"), an experienced developer of affordable housing, proposes to
develop a 69 -unit affordable housing development, for families, to be located at 1440 East First Street, in
the City of Santa Ana. The Developer has already purchased the site from an un -related party, Grand
Frontier Investments, LLC. The Developer proposes to construct 7 buildings: 6 buildings would house 68
affordable units and one manager's unit; 1 building would be a non-residential community building. The
Developer proposes to finance the Project with an allocation of 9% low-income housing tax credits
(LIHTC), committed funds from the City, and senior first mortgage financing for JPMorgan CHASE or
another lender.
SAN FRANCISCO ATLANTA 65A -59)s ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 12, 2017
First Street Apartments Financial Feasibility
Pace 2 of 7
Eight units will be the recipients of a project -based Section 8 contract awarded through the City of Santa
Ana.
The Project would contain affordable units as indicated in Table 1, below.
Table 1: Proposed Units and Affordability
Restriction (AMI) 2 -Bedroom 3 -Bedroom 4 -Bedroom Total
30%AMI 29* 4* 1 34
500/.AMI 4 17 21
60%AMI 1 7 5 13
Manager's Unit
Total 35 28 6 69
* four 2-bdm 30%AMI unis and 4 3-bdm 30% AMI units will be subject to a Section 8 HAP contract.
Table 2: Units Rents
Bedroom Size
AMI
Restriction
2017 CTCAC
Rent
Utility
Allowance
Net Rent
Section 8
Contract
Rent
2 Bedrooms
30%
$704
$55
$649
$1,685
2 Bedrooms
50%
$1,173
$55
$1,118
2 Bedrooms
60%
$1,408
$55
$1,353
3 Bedrooms
30%
$813
$63
$750
$2,367
3 Bedrooms
50%
$1,356
$63
$1,293
3 Bedrooms
60%
$1,627
$63
$1,564
_
4 Bedrooms
30%
$907
$71
$836
4 Bedrooms
60%
$1,815
$71
$1,744
Request for Funds
On January 18, 2017, the City notified the Developer that the City had provided a "pre -commitment" for
a subordinate loan in the amount $2,600,000. The City's obligation to fund the loan in respect of its pre -
commitment is subject to certain conditions, including receipt by the City of a certain In -Lieu Fee
payment necessary to fund the loan.
The City, through the Housing Authority of the City of Santa Ana, acting as successor agency to the
Redevelopment Agency of the City of Santa Ana, has also provided a pre -commitment for a subordinate
loan up to the amount of $6,195,000
Financial Plan Analysis
We have focused our analysis on a review of the Project's sources and uses in the context of the Project's
proposed 9% tax credit financing. In most cases, subordinate financing from public agencies finances the
"affordability gap" i.e., the financial gap resulting from the addition of affordable units. In the case of
First Street Apartments, the subordinate financing, arguably, is not necessary to close an affordability gap
but, rather, it is necessary to finance the financial gap necessitated by the completion for 9% tax credits.
CSGIadvisorS SAN FRANCISCO 65AIA60 • LOS ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 12, 2017
First Street Apartments Financial Feasibility
Page 3 of 7
Understanding this clearly should assist the City in understanding the ultimate purpose of its funds and
therefore, the amount it is willing to provide in order to achieve the desired outcome. (In order to cause
a winner among perfectly scoring projects, CTCAC institutes a "tie-breaker" that largely relies on public
subsidy to determine winners. Le., the more public subsidy, the more likely a project to "win" the tie-
breaker.)
In order to achieve the foregoing, the analysis proceeds as follows
• Side-by-side comparison of the Developer's sources and uses budget with a "Base Budget"
constructed by CSG, with explanation of variances.
• Building upon the CSG Base Budget, comparison of the Developer's sources and use budget
with a CSG -constructed budget including deferred developer fee.
Each of the above maintains the same tie-breaker score (44.7%) targeted by the Developer.
We then provide three financing scenarios, starting from no City financing, and the resulting tie-breaker
score, and two additional scenarios with increasing higher tie-breaker scores and the resulting City funds
necessary to achieve them.
Table 3, below, provides a consolidated form of the Developer's budget compared to the CSG "Base
Budget" showing modifications proposed by CSG. In creating this analysis and variance, we have used
the Developer's assumptions (except as noted) and modeled the Project using the CTCAC application
form applicable to the upcoming application round.
Table 3: Variance Analysis of Developer's Budget to CSG "Base Budget"
USES
Budget Item
Total Land Cost
Developer
$4,894,375
CSG
$4,894,375
Variance Explanation of Variance
$0
Total Acquisition Cost
$98,039
$98,039
$0
Predevelopment Interest/Holding
Cost
$826,991
$826,991
$0 See Discussion, below
Site Remediation
$175,000
$175,000
$0
Relocation Expenses $955,161 $955,161 $0 See Discussion, below
Total New Construction Costs $13,683,815 $13,683,815 $0 See Discussion, below
Total Architectural Costs
Total Survey and Engineering $1,130,140 $1,130,140 $0
Construction Loan Interest $1,017,061 $675,955 ($341,106) See Discussion, below
Construction Loan
Origination Fee $193,857 $130,392 ($63,465) 0.75% commitment Fee per chase letter
Other Construction Interest and Fees
$0
Permanent Origination Fee $65,600 $0 ($65,600) No Commitment Fee per Chase letter
Other Permanent Financing Costs $45,000 $45,000 $0
Total Attorney Costs $225,000 $225,000 $0
Total Reserve Costs $214,053 $214,053 ($0)
Total Appraisal Costs $15,000 $15,000 $0
Total Contingency Costs $716,593c /x$716,5933 $0
CSG Iadvisors SAN FRANCISCO •65A9T6A1 • LOS ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 12, 2017
First Street Apartments Financial Feasibility
Page 4 of 7
Total Other Costs $2,781,280 $2,781,280 $0
Subtotal Project Costs $27,999,913 $27,529,742 ($470,171)
Developer Fee $2,199,087 $2,205,612 $6,525
Total Development Costs $30,199,000 $29,735,354 ($463,646)
PERMANENT SOURCES
JPMorgan Chase -Perm Loan
$5,109,022
$5,413,350
$304,328
See Discussion, below
JPMorgan Chase -Section 8 Loan
$1,451,023
$1,537,459
$86,436
See Discussion, below
Reduction to balance budget while
maintaining same approximate CTCAC tie -
City of Santa Ana -Inclusionary Funds
$2,600,000
$2,327,740
($272,260)
breaker
City of Santa Ana -Housing Funds
$6,195,000
$6,195,000
$0
Deferred Developer Fee
$0
$0
$0
Low Income Housing Tax Credit
Reduced equity necessary for
SURPLUS/ (DEFICIT) $0 $0 $0
Discussion of Table 3
The "Uses" portion of Table 3 shows the Developer's budget, contrasted with modifications proposed by
CSG.
• Predevelopment Interest/Holding Costs: The Developer's sources for acquiring the site include an
unsecured note from a developer -related entity (AMCAL 1440 Santa Ana Fund) in the amount of
$1,151,000 at an interest rate of 10%. The interest rate would appear high given the relationship of
the parties: because the transaction is extant, the City may want to provide consideration of this cost
in other aspects of the transaction.
Total New Construction Costs. CSG has not received information from the developer concerning its
estimates of construction costs. The Developer proposes to use a related entity, AMCAL General
Contractors, to serve as the general contractor for the project. While such an arrangement may
provide for cost savings, it also can result in abuses. The City may want to consider requiring
competitive bidding not only for the sub -contractors, but also for the general contractor.
Relocation Costs: The Developer has provided a relocation plan prepared by Overland, Pacific &
Cutler indication total relocation costs of only $865,000. The City should require the Developer to
provide justification for their budgeted amount.
Construction Loan Interest. Per the Chase commitment letter, the base rate today would be 0.99%
plus indicated spread of 2%. The total rate would be 2.99%. We have added 0.25% "cushion" to
total 3.24% annual interest. Considering the Developer's construction loan amount of $17,385,665
and a total construction period (i.e., to conversion), the Developer's construction loan interest of
$1,017,061 would represent an average outstanding balance of 90%, which is unlikely, given the other
sources. A more typical underwriting would be 60% average outstanding balance. So underwritten,
the outstanding construction interest is reduced to approximately $676,000.
Origination Fee. The Chase commitment letter indicates a 0.75% construction loan origination fee.
0.75% of the construction loan amount equals the indicated origination fee.
CSG Iadvisors SAN FRANCISCO 65k662 • LOS ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 12, 2017
First Street Apartments Financial Feasibility
Pace 5 of 7
• Permanent Origination Fee. The Chase commitment letter does not indicate a permanent
origination fee.
The "Sources" portion of the table illustrates proposed corrections to certain of the sources.
• Chase: We have evaluated the interest rate and terms contained in the Chase commitment letter
(also taking into account the Developer's indication that the California Community Reinvestment
Corporation (CCRC) may provide the permanent loan) with recent proposals from CCRC as well as
published rates from Citibank. Recent indications from CCRC have been in the 5.65% range
(including for the Santa Ana Arts Collective). Citibank, in its "Citi Community Capital's Multifamily
Housing Indicative Rates and Terms" publication (May 10, 2017) indicates, for a forward commitment
loan for 9% LIHTC project (18yr term, 30-35yr amortization), all -in rates of 5.41% — 5.91%. We have,
therefore lowered the underwriting rate from 6.5% to 6.0%. The calculation of the permanent loans
is as indicated below:
Tax Credit Rents Section 8 Increment
Effective Gross Rents $806,573 per Developer units mix and 5% $120,977
and Reserves
commitment letter) 1.15
$1
Cash Flow Available to Support Debt $370,369 $105.197
Interest rate/Amortization Term 6.0%/35yrs 6.0%/35yrs
Loan Amount $5,413,350 $1,537,459
City of Santa Ana Inclusionary Funds and Low Income Housing Tax Credit Equity: these two entries
are "toggles" to eliminate the financing gap and maintain the targeted CTCAC tie-breaker.
CSG Base -Budget with Deferred Developer Fee.
For this scenario, we have adjusted the sources of the CSG Base Budget to reflect the addition of
deferred Developer Fee. The amount of deferred fee was calculated as the sum of all cashflows in years
1-12. The amount of City loan and Low Income Housing Tax Credit Equity were "toggles" to maintain
the 44.7% tie-breaker target and eliminate financing deficits. A summary of the Scenario follows in Table
4 below.
USES
Table 4: CSG Base -Budget with Deferred Developer Fee
Budaet Item Developer CSG Variance Explanation of Variance
Total Development Costs $30,199,000 $29,735,354 ($463,646)
PERMANENT SOURCES
JPMorgan Chase -Perm Loan
$5,109,022 $5,413,350 $304,328 Per above i
JPMorgan Chase -Section 8 Loan
$1,451,023 $1,537,459 $86,436 Per above
Reduction to balance budget while
maintaining same approximate CTCAC tie -
City of Santa Ana -Inclusionary Funds
$2,600,000 $1,986,876 ($613,124) breaker
CSG Iadvisors SAN FRANCISCO •65A7563 LOS ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 12, 2017
First Street Apartments Financial Feasibility
Pace 6 of 7
City of Santa Ana-Housinq Funds $6,195,000 $6,195,000 $0
Deferred Developer Fee $0 $1,284,518 $1,284,518 Max. deferred ® 12yrs cash flow.
Low Income Housing Tax Credit
Equity —_ $14,843,955__ $13,318,151 ($1,525,804) Reduced equity necessary for feasibility
TOTAL SOURCES $30,199,000 $29,735,354 ($463,646)
SURPLUS/ (DEFICIT) $0 _ $0 $0
Additional Tie -Breaker Scenarios
The attached tables illustrate the detail of three additional tie-breaker scenarios. These scenarios allow
the City to compare varying tie-breaker scores — and the amount of City subsidy necessary to achieve
them — with the tie-breaker scores of recently successful CTCAC 9% projects. A summary of the scenarios
follows below in Table 5
Table 5: Summary of Tie -Breaker Scenarios
Tie Breaker Target
1
15.15%
Scenario
2
37.6%
3
40.0%
Total Development Costs
$29,735,354
$29,735,354
$29,735,354
PERMANENT SOURCES
2015
2nd
_
46.298%
JPMorgan Chase -Perm Loan
$5,413,350
$5,413,350
$5,413,350
JPMorgan Chase -Section 8 Loan
$1,537,459
$1,537,459
$1,537,459
City of Santa Ana -Inclusionary Funds
$0
$20,447
$685,145
City of Santa Ana-Housinq Funds
$0
$6,195,000
$6,195,000
_Deferred Developer Fee $1,284,518 __$1,284,518 $1,284,518
Low Income Housing Tax Credit
Equity $21,500,027 $15,284,580 $14,619,882
L TOTAL SOURCES$29,735,354 $29,735,354__ $29,735,354
SURPLUS / (DEFICIT)_ _ $0 _ $0 $0
The above tie -breakers can be compared with the tie -breakers of recently successful projects (not
including wait -list projects) in the Orange County geographic region
Table 6: Tie -Breakers Scores of Recently Successful Orange County Region
CTCAC 9% Projects
Project Name
Fullerton Family Housing
Year
2016
Round
2nd
Tie -Breaker
35.765%
Oakcrest Height
2016
1st
27.669%
Derian Apartments
2015
2nd
_
46.298%
Depot at Santiago
2015
2nd
_
45.381%
Lincoln Avenue Apts
2014
2nd
34.323%
City Yard Workforce Housing
2014
1st
41.101%
CSG Iadvisors SAN FRANCISCO 65A44 . LOB ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 12, 2017
First Street Apartments Financial Feasibility
Page 7 of 7
Financing Deficit
As noted, absent the need achieve a successful tiebreaker score in the CTCAC completion for 9% credits,
the Project would not exhibit a financing deficit. The City must decide, based on an expectation of the
successful tie-breaker score, the amount of subsidy necessary to achieve that score.
Operating Expenses and Operating Pro Forma
The Developer proposes annual operating expenses per unit of approximately $4,920 per unit not
including reserves, based on expenses of its recently completed projects in the region, e.g., Ocean
Apartments in Huntington Beach. CSG has not examined specific support for these estimates; they seem
on the lower end of the spectrum but not out of the question for an efficient manager.
The Developer's proposed operating pro forma uses standard underwriting requirements for tax -credit
and bond financing projects: annual income inflation at 2.5% and annual expense inflation of 3.5%;
vacancy of 5% annually. These underwriting assumptions along with calculated debt service on the CCRC
senior permanent mortgages results in an initial year debt service coverage (DCR) of 1.15, with increasing
DCR each year there after. The Developer's proposed operating pro forma indicates a healthy project
from an operational perspective.
CONCLUSION
The Project will be competing for 9% Low Income Housing Tax Credits. Absent the CTCAC particular tie-
breaker — and maximum deferred developer fee -- the project would not require funds from the City.
However, the nature of the CTCAC competition requires committed public funds in order to be
successful. The City must decide the level of tie-breaker it wishes to target in combination with the
amount of City funds necessary to achieve that target.
CSG Iadvisors SAN FRANCISCO •65A"65 LOS ANGELES NEW YORK
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65A-66
CSG I advisors
Memorandum
To: Judson Brown, City of Santa Ana
From: John Hamilton, CSG Advisors
Date: May 24, 2017
Re: Tiny Tim Plaza Apartments Financial Feasibility Review
SUMMARY
ct Overview and the Proposed Project
EXHIBIT 8
1 Post Street, Suite 575
San Francisco, CA 94104
tel. 415.956.2454
Community Development Partners proposes to develop a 51 -unit affordable housing development, to be
located at 2223 and 2237 West 5' Street, in the City of Santa Ana. The Developer proposes to purchase
the existing site, which is currently a strip mall and parking lot. The Developer would rehabilitate and "re -
purpose" the existing commercial for use by non -profits and community agencies, and newly develop 51
units of affordable housing. Units in the Project would be affordable to families earning between 30%
and 60% of area median income.
The Proposed Financing
The Developer proposes to finance the Project using the proceeds of the issuance of tax-exempt bonds
along with the equity derived from the sale of 4% low-income housing tax credits and deferred Developer
fee. In addition, the Developer proposes to obtain five Section 8 vouchers, and funds from the State of
California's Affordable Housing Sustainable Communities (AHSC) program and New Market Tax Credits
to eliminate the Project's financing deficit.
Conclusion
The Project has a financing deficit of approximately $11.7M. The Developer proposes, in addition to
funds requested from the City, to close the financing deficit with a permanent loan funded by commercial
rents; and funds from the AHSC, New Market Tax Credits, and the use of Section 8 vouchers. The project
has not yet applied for these sources. The suitability of the Project for those sources and the likelihood of
success in obtaining those sources should be the source of a separate analysis.
PROJECT FINANCIAL ANALYSIS
Project Description
Community Development Partners (the "Developer"), an experienced developer of affordable housing,
proposes to develop a 51 -unit affordable housing development, to be located at 2223 and 2237 West 5t"
Street (the "Site"), in the City of Santa Ana. The Developer proposes to purchase the existing site, which
is currently a strip mall and parking lot. The Developer would rehabilitate and "re -purpose" the existing
commercial for use by non -profits and community agencies, and newly develop 51 units of affordable
housing.
The Developer proposes to finance the Project using the proceeds of the issuance of tax-exempt bonds
along with the equity derived from the sale of 4% low-income housing tax credits.
SAN FRANCISCO ATLANTA 65A -67S ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 24 2017
Tiny Tim Plaza Apartments Financial Feasibility
Pace 2of6
The Site
The Virginia A. Nicholas Trust (Seller) currently owns the Site. On May 1, 2016, Magis Realty entered into
a Purchase and Sale Agreement (PSA), as amended, with the Seller for the purchase of the Site. Magis
Realty assigned its interest under PSA to the Developer pursuant to an Assignment of Buyers Interest
(Assignment). Please note that the Assignment as provided for CSG's review required execution by six
members of the Seller; however, only one Seller's signature was present. Therefore, CSG cannot
conclude that the Developer actually controls the Site. Note, further, that the amendment to the PSA
requires close of escrow by June 1, 2017. In the absence of a further amendment extending the period to
close escrow, the Developer must purchase the Site in order to retain control. According to an email
from the Developer to the City dated March 16, 2017, the Developer plans to use an acquisition loan from
the Low Income Investment Fund (LIIF) to purchase the Site; the Developer would like a commitment of
soft financing from the City before purchasing the Site.
Units And Affordabil
The Developer proposes affordability and unit mix as described Table 1, below.
Table 1: Proposed Units and Affordability
Restriction AMI
2 -Bedroom
3 -Bedroom
4 -Bedroom
Total
30% AMI
2
3
5
50%AMI
1
1
60%AMI
17
26
1
44
Manager's Unit
1
1
Total
AMI
Bedroom Size Restriction
20
Table 2: Units
2017 CTCAC
Rent
29
Rents
Utility
Allowance
2
Net Rent
51
Section 8
Contract
Rent
2 Bedrooms 30%
$704
$60
$649
NA
2 Bedrooms 60%
$1,408
$60
$1,353
NA
3 Bedrooms 30%
$813
$85
$750
NA
3 Bedrooms 60%
$1,627
$85
$1,564
NA
4 Bedrooms 50%
$1,512
$10S
$836
NA
4 Bedrooms 60% $1,815 $105 $1,744 NA
Note that CSG has adjusted the Developer's pro forma rents (i.e., increased) to conform with the 2017
CTCAC rents applicable to Orange County
Request for Funds
The Developer has requested, via email to the City, subordinated financing in the amount of $6,000,000.
The Developer would like a commitment of these funds before purchasing the Site before the expiration
of the escrow period (June 1, 2017).
CSG Iadvisors SAN FRANCISCO 65AI-68 • LOS ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 24 2017
Tiny Tim Plaza Apartments Financial Feasibility
Page 3 of 6
Financial Plan Analysis
The Developer proposes to use 4% tax credits and tax-exempt bonds to financing, in part, the Project.
In addition, the Developer proposes:
Funding to be obtained through the State of California's Affordable Housing Sustainable
Communities program;
New Market Tax Credits
• Section 8 vouchers for the five 30% AMI units.
However, as the Developer has neither obtained, applied for, nor provided draft applications for these
sources, CSG has not accounted for them in this analysis. Nor have we evaluated the Project for
competitiveness or suitability for any of the above.
We have focused our analysis on a review of the Project's sources and uses in the context of the Project's
proposed 4% tax credit financing.
In order to achieve the foregoing, the analysis proceeds as follows
Side-by-side comparison of the Developer's sources and uses budget with a "Base Budget"
constructed by CSG, with explanation of variances.
Building upon the CSG Base Budget, comparison of the Developer's sources and use budget
with a CSG -constructed budget including deferred developer fee.
Table 3, below, provides a consolidated form of the Developer's budget compared to the CSG "Base
Budget" showing modifications proposed by CSG. In creating this analysis and variance, we have used
the Developer's assumptions (except as noted) and modeled the Project using the applicable CTCAC
application form.
Table 3: Variance Analysis of Developer's Budget to CSG "Base Budget"
USES
Budget Item Developer CSG Variance Notes/Explanation of Variance
Total Land /Acquisition Cost $3,996,300 $3,996,300 Includes land and holding costs
Total New Construction Costs
Total Construction Contingency (5%) $763,515 $763,515
Total Architectural Costs
Total Survey and Engineering $150,500 $150,500
Construction Loan Interest $690,000 $926,990 $236,990 See discussion below
Construction Loan
Origination Fee $221,000 $221,000 0.75% commitment Fee per chase letter
Permanent Origination Fee $10,000 $10,000 Typical Citi "Conversion fee"
Total Attorney Costs
$165,000 $165,000
Total Reserve Costs
6 mos. Operating Reserve typical of Citi
$371,938 $371,938 underwriting
Total Appraisal Costs
10,000cc
10,000e0
CSG Iadvisors
//��
SAN FRANCISCO •v5�'I -m69 LOS ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 24 2017
Tiny Tim Plaza Apartments Financial Feasibility
Page 4 of 6
Costs of Bond Issuance
Permits and Fees
Soft Costs $508,786 $508,786
Subtotal Project Costs $23,890,144 $24,127,134
Max Developer Fee per CTCAC (assuming
Developer Fee 12AW000 12,576205 $176.205.15 eligible basis of approx.$17,174,701)
Total Development Cost' $26,290,144 $26,703,339 $413,195
PERMANENT SOURCES
Permanent Loan - Residential
$8,420,587
$7,829,652
($590,935)
See Discussion, below
Permanent Loan — Retail
$2,113,746
$0
($2,113,746)
See Discussion, below
Reflects total 12 -year cash flow (after
partnership and asset management fees
starting at $18,500) available for payment of
Deferred Developer Fees
$1,014,984
$1,330,993
$316,009
deferred fees.
Low Income Housing Tax Credit
Equity
r
$5.770.828
JL841 326
$70,498
See Discussion, Below
TOTAL SOURCES
$17.320.145
$15.001.971
($565,768)
( SURPLUS/(DEFICIT) ($8,969,999) ($11,701_368) _($968,963)
*Developer's budget total of $26,320,144 does not correctly total by $30,000 (error in Developer's "Indirect
Construction" total)
Discussion of Table 3
The "Uses" portion of Table 3 shows the Developer's budget, contrasted with modifications proposed by
CSG.
• Total New Construction Costs: Supported by a "Conceptual Estimate" provided by the Advent
Companies. Le., these are very preliminary estimates based on conceptual drawings.
• Construction Loan Interest: CSG has applied typical underwriting criteria i.e., 60% average
outstanding balance, during the term (24 mos), at the underwriting interest rate (3.65%).
• Developer Fee: CSG has adjusted the Developer Fee to reflect 15% of unadjusted eligible basis (i.e.,
$17,174,701) not including the Developer Fee as allowed by CTCAC for 4% tax credit projects.
The "Sources" portion of the table illustrates proposed corrections to certain of the sources.
• Permanent Loan - Residential: We have sized the Permanent Loan with out reference to Section 8,
because the developer has not applied for or secured an award of Section 8 vouchers. The
calculation of the permanent loans is as indicated below based on terms consistent with the market
and typical Citibank tax-exempt bond transactions:
Tax Credit Rents
Effective Gross Rents $793,406 (per Developer units mix and 5%
Net Cash Flow
DSCR
Cash Flow Available to Support Debt
CSG Iadvisors SAN FRANCISCO 65XA70
1.15
$459,309
LOS ANGELES
NEW YORK
Judson Brown, City of Santa Ana
May 24 2017
Tiny Tim Plaza Apartments Financial Feasibility
Pace 5 of 6
Interest rate/Amortization Term 4.75%/35yrs
Loan Amount $7,829,652
Note that the Effective Gross Rents reflect 2017 CTCAC rents for Orange County.
Permanent Loan — Retail: Lender and investor underwriting of the retail space would be atypical for
affordable lending and, as CSG has not received substantiation of Lender willingness to underwrite
the retail, CSG has eliminated this source.
• Low -Income Housing Tax Credit Equity: The LIHTC equity reflects slightly adjusted eligible basis as
compared to the Developer Budget. The LIHTC equity calculation is as follows (per the CTCAC
application form):
Total Eligible Basis
$19,750,906
QCT basis boost
100%
Total Adjusted Eligible Basis
$19,750,906
Applicable Fraction
100.00%
Total Qualified Basis
$19,750,906
Applicable Percentage
3.25%
Annual Federal Credit
$641,904
Total Federal Credit
$6,419,040
Tax Credit Factor
$0.91
LIHTC Equity
$5,841,326
Financing Deficit
Based on the adjustments• noted above, the Project has a financing deficit of approximately $11.7M. The
Developer has proposed to close this financing deficit with permanent financing based on the
commercial rents; and with funds from City, the State of California's AHSC program, Section 8 vouchers,
and New Market Tax credits. This analysis has not addressed the Project's suitability or likelihood of
success for the latter three programs.
Operating Expenses and Operating Pro Forma
The Developer proposes annual operating expenses per unit of approximately $4,900 per unit not
including reserves, based on expenses of its recently completed projects in the region, e.g., Guest House
apartments.
The Developer's proposed operating pro forma uses standard underwriting requirements for tax -credit
and bond financing projects: annual income inflation at 2.5% and annual expense inflation of 3.5%;
vacancy of 5% annually. These underwriting assumptions along with calculated debt service on the first
Permanent Loan results in an initial year debt service coverage (DCR) of 1.15, with increasing DCR each
year there after. The Developer's proposed operating pro forma indicates a healthy project from an
operational perspective.
CONCLUSION
The Project has a financing deficit of approximately $117M. The Developer proposes, in addition to
funds requested from the City, to close the financing deficit with permanent financing based on the
commercial rents; and with funds from the AHSC, New Market Tax Credits, and the use of Section 8
CSG Iadvisors SAN FRANCISCO •65AA74 LOS ANGELES NEW YORK
Judson Brown, City of Santa Ana
May 24 2017
Tiny Tim Plaza Apartments Financial Feasibility
Pace 6 of 6
vouchers. The project has not yet applied for these sources. The suitability of the Project for those
sources and the likelihood of success in obtaining those sources should be the source of a separate
analysis.
CSG IadvisorS SAN FRANCISCO 65A42 LOS ANGELES NEW YORK
CORRESPONDENCE
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CDP
COMMUNITYDli' UOPMF7Y1'PAR'INFES
May 31, 2017
Mr. Robert Cortez
Deputy City Manager
City of Santa Ana
20 Civic Center Plaza
Santa Ana, CA 92701
Re: Tiny Tim Plaza Affordable — Request for City Funding Commitment
Dear Mr. Cortez:
This letter is to formalize our request for a commitment of $6,000,000 in City funds to serve as gap financing
for the Tiny Tim affordable housing development, located at 2223 W 5th St in Santa Ana. The project will
provide 51 units of new, high quality, affordable rental homes targeting large families, while also enhancing
the existing businesses through rehabilitation of the retail center. Upon completion the project will serve as a
community social node where housing, local businesses and community services interact to promote a
healthier neighborhood. The commitment of funds from the City of Santa Ana will provide our acquisition
lender the comfort needed to move forward with the acquisition loan and allow us to meet our close of
escrow deadline. Additionally the commitment of funds will make Tiny Tim more competitive when trying to
leverage alternative financing sources, including New Market Tax Credits (NMTCs) and Cap & Trade (AHSC)
funds. Both of these sources are not available until later in the year, after our escrow close deadline.
We believe the Tiny Tim project will have an incredibly large and positive impact on the surrounding
community. We also believe as a developer we should attempt to leverage City resources with alternative
funding sources available for the project. The commitment of City funds is a crucial component to allow the
project to compete for future sources.
Thank you for your consideration of the Tiny Tim project. Should you have any questions, please do not
hesitate to contact me at 949-922-3578.
Sincerely,
V 4
Kyle Paine, President
Community Development Partners
3416 Via Oporto, Ste 301, Newport Beach, CA 92663 T: 949-.467.1344 FX: 949.419.0952 www.communitydevpartners.com
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Mitre -Ramirez, Norma
From:
Huizar, Maria
Sent:
Thursday, June 1, 2017 12:22 PM
To:
Cortez, Robert
Cc:
Kurtz, Cynthia; Mitre -Ramirez, Norma
Subject:
RE: Santa Ana Arts - Council Options
We will include in the packet for 6/6 meeting, which is when the item will be considered, correct?
From: Cortez, Robert
Sent: Thursday, June 1, 2017 12:09 PM
To: Huizar, Maria <MHuizar@santa-ana.org>
Cc: Kurtz, Cynthia <CKurtz@santa-ana.org>
Subject: FW: Santa Ana Arts - Council Options
Maria,
This correspondence came in today and was tied to the special meeting.
Thanks,
Robert Cortez,
Deputy City Manager
City of Santa Ana
20 Civic Center Plaza I Santa Ana, CA 92701
(714) 647-5200 1 rcortez5@santa-ana.ora
From: Chris Maffris fmailto:cmaffris@metahousine.com]
Sent: Thursday, June 1, 2017 11:03 AM
To: Cortez, Robert <RCortezS@santa-ana.ore>
Cc: Kasey Burke <kburke@meta housing.com>; Michelle Coulter <MCoulter@metahousine.com>; Brian Hendricks
<bhendricks@maeisrealtv.com>; Brown, Judson <JBrown @santa-ana.ore>
Subject: Santa Ana Arts - Council Options
Hello Robert,
We appreciate the opportunity to respond to the financial assistance options for Santa Ana Arts Collective, as presented
in today's Agenda.
Per the Agenda, the following are the options for Council discussion and consideration:
Option #1: Amend the project's original award by an additional amount up to $2.9 million per Keyser Marston Associates
(KMA) gap analysis.
Option #2: Amend the project's original award by an additional amount up to $1,481,215, per CSG Advisors gap analysis.
City financial assistance to be negotiated by CSG Advisors and Meta Housing.
Though both reports agree that a Developer Fee of $2 million is a CTCAC limit for projects financed with competitive 9%
tax credits, KMA and CSG's suggestions for the means and extent to which developer fee is further limited, differ
greatly.
65AL77
KMA has recommended that Meta forgo at least $600K in developer fee to help close the financial gap, which while
onerous, we can still live with.
CSG has recommended that Meta forgo $1,269,942 of its developer fee via a $269,942 fee deferral and a $1M GP
contribution. This $1M contribution would need to be taken as income and taxed, further reducing the actual net
developer fee received to only about $380K (a total deferral of $1,620,000). In short, Meta's financial upside for nearly
five years of work and incredible construction risk would be limited to $380K, which does not even cover overhead.
Additionally and perhaps more importantly, developer fee, specifically un -deferred developer fee, is viewed by the
lenders and investors as Project Contingency and necessary to avoid capital shortfalls that could inhibit construction
completion. In other words, under the KMA option, lenders and investors can rely upon Meta's un -deferred developer
fee to cover $1.4 million in unanticipated cost increases. Under the CSG option, they would only see $380K in net
developer fee to cover unanticipated cost increases, which is insufficient for their underwriting.
In summary, we respectfully request that the City Council elects to move forward with KMA's suggested financial
assistance of $2.9 million, with a minimum deferred developer fee of $600K. We are prepared to shoulder $600K of the
gap, but anything further leaves us unable to cover 5 years of our own internal costs and the financial risks of
guaranteeing completion of a $34M project.
We remain hopeful that we can continue moving forward in partnership with the City on this exciting and innovative
project. Thank you again for your time and consideration.
Chris
Christopher Maffris, Senior Vice President
META HOUSING CORPORATION
1640 Sepulveda Blvd., Suite 425
Los Angeles, CA 90025
T. (310) 575-3543 ext. 108
F. (310) 575-3563
Email: cmaffris@metahousins.com
Website: www.metahousing.com
This email and any files or attachments transmitted with it may contain privileged or otherwise confidential
information. If you are not the intended recipient, or believe that you may have received this communication in
error, please advise the sender via reply email and immediately delete the email you received.
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