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Home My WebLink AboutG.2 Darlinton Boulevards Funding Request Community Housing Advisory Board Memorandum REPORT TO: Chair Thane and Board Members FROM: Tanya Andreasen, Community Housing Program Manager SUBJECT: Request from HRDC for $500,000 for the reimbursement of construction costs to renovate and rehabilitate Darlinton Manor and The Boulevards Apartments. MEETING DATE: October 14, 2020 AGENDA ITEM TYPE: Action RECOMMENDATION: It is the recommendation of staff that the request should be funded at the requested level of $500,000. The completion and approval of a grant agreement is required before presentation to the City Commission. SUGGESTED MOTION: Having reviewed and discussed the funding request from HRDC, I move to recommend City Commission approval of an amount not to exceed $500,000. BACKGROUND: This funding request aligns with the CAHAB approved Community Housing Fund Philosophy as it will use the funds to preserve 141 subsidized rental homes in the existing Boulevards Apartments and Darlinton Manor. One of three objectives that guide the work of the Community Housing Action Plan is to “[s]trive to produce community housing at a rate that matches the spectrum of community housing needs, while also preserving what we have through a target of no net loss of existing community housing stock”. Producing new affordable housing stock is complicated and expensive, and so is preserving existing affordable homes. Some federal subsidies sunset after a certain number of years, creating a situation where homes that were affordable for that term are in danger of converting to market rate homes or redeveloped for other uses. In this case, both buildings serve very low income community members, and were purchased by HRDC with the intention of preserving them as affordable homes. Darlinton Manor serves low-income seniors and people with disabilities. Residents pay 30% of their income towards rent in 88 of 100 apartments. HRDC intends to ensure the remaining 12 homes are affordable by adding place-based Section 8 vouchers to those homes. There are 41 subsidized rental homes in The Boulevards Apartments, serving low-income people with disabilities and seniors. Tenants pay 30% of their income towards rent. Due to their desirable locations, apartments in both buildings are at real risk of converting to market rate. As explained in their request, HRDC is working to convert the current federal subsidy contract, which requires annual renewal, to a 20-year Housing Assistance Payment Contract. HRDC is combining both Darlinton Manor and Boulevards projects in the same Low Income Housing Tax Credits (LIHTC) application. The applicant’s cover letter and funding application are attached to this memorandum, and provide additional detail on the Low Income Housing Tax Credit and Housing Trust Fund applications for the acquisition and rehabilitation of these two properties, including the crucial need for local financial participation. This application request was presented at CAHAB’s meeting on September 9, 2020. Using CAHAB’s recommended Community Housing Fund Proposal Scoring Methodology, CAHAB and staff scored the application. CAHAB’s composite score was 58.8 points (42.5 average points for the first section, and 16.3 for the second). The total possible points for a funding request application with dwelling units in the project is 42 points. The overall percentage score for this proposal from five CAHAB members is 140%. Staff also scored the application, giving it 58 points (40 in the first section and 18 in the second) and an overall score of 138%. CAHAB composite score and staff score align closely, giving additional support to a positive staff recommendation for this funding request. If CAHAB recommends approval of this grant, staff will draft a grant agreement which will be presented to the City Commission for approval at a later date. The grant agreement will include additional detail on the use of the grant funds, and how and when requests for payment must be made. FISCAL EFFECTS: The full payment of $500,000 will reduce the balance of the Community Housing Fund to $XXX as of the writing of this report. The budget for community grants in FY21 was $515,000 and has been spent. This and any additional projects approved in FY21 will require a budget amendment to appropriate Community Housing Funds to that budget line item (Community Grants). Attachments: HRDC grant request cover letter HRDC application Project schedule Project budget Report compiled: 10/7/2020 August 28, 2020 Ms. Tanya Andreasen Community Housing Program Manager City of Bozeman 20 E Olive Street Bozeman, MT 59715 Dear Ms. Andreasen: HRDC and Good Housing Partnership seek City support to assist with the preservation and rehabilitation 141 subsidized rentals in the Boulevards Apartments and Darlinton Manor. Preservation of subsidized rentals is a critical strategy to meeting the objectives of the City’s Community Housing Action Plan. The Boulevards Apartments a 41-unit subsidized building is in the heart of downtown, just across the street from HRDC’s Bozeman offices. The building serves very low-income people with disabilities and elderly members of our community. The proximity to HRDC housing counselors, service navigators and other supportive services, along with a subsidy that ensures that tenants only pay 30% of their income toward rent, has helped many tenants exit long-time homelessness and achieve housing stability. Unfortunately, this prime downtown location, and the nature of the annually-renewing mod-rehab subsidy placed the building at high redevelopment risk. In August 2019, HRDC worked with the property owner to acquire the building using a temporary financing structure, with the long- term intent to apply for Low Income Housing Tax Credits (LIHTC) to acquire and rehabilitate the apartments. HRDC is also working with HUD’s Rental Assistance Demonstration (RAD) program to convert the annually-renewing mod-rehab contract to a 20-year Housing Assistance Payment Contract. To assist with the RAD conversion and LIHTC process, HRDC is partnering with a national expert in RAD conversions, Good Housing Partnership (GHP). The RAD conversion will both preserve the subsidy for the units, while extending the contract period beyond the current annual period, making market conversion difficult. The LIHTC will also allow for a substantial renovation of the building. Built in 1914, the apartments need extensive systems and accessibility upgrades, in addition to full renovation of the units. Darlinton Manor is a 100-unit subsidized property targeted to low-income seniors and people with disabilities. HRDC’s subsidiary corporation, Darlinton Apartments, Inc. acquired this property in July 2020. This property currently has a HUD Housing Assistance Payment contract, which guarantees that residents only pay 30% of their income toward rent, on 88 of the 100 units. HRDC plans to add place- based Section 8 Housing Vouchers to the remaining units to expand subsidy to all 100 units. While the scope of work needed at Darlinton Manor is not as extensive as the Boulevards, the units are in need of renovation and ADA upgrades. Combining the LIHTC application for acquisition and rehabilitation of the Boulevards and Darlinton allows for the scale required to apply through the non-competitive 4% LIHTC program. Under the non-competitive program, all applications meeting threshold requirements are funded. This results in a more rapid tax credit commitment, and allows HRDC to forgo the risks of the competitive funding process. While the LIHTC 4% application process is non-competitive, the constraints of the program limit the percentage of seller note and deferred developer fee allowed. Additionally, the rehabilitation proposes $1 million in funding from the Housing Trust Fund, which is a competitive funding process. One critical component of HTF application ranking is local financial participation. As such, the loss of funds from the City would adversely impact both the LIHTC and HTF applications and the feasibility of the project in general, possibly risking loss of subsidized units in our community. The Community Housing Needs Assessment notes that the community is already in desperate need of additional housing units for people at all income levels. An estimated 1,460 units are needed just to meet current demand; to meet the needs of Gallatin County’s growth rate, over 3,000 below- market rate units are needed. As this community continues to grow, the preservation of affordable housing like the Boulevards and Darlinton Manor is critical. At this time, only 5% of the City’s rentals are affordable to households earning less than 60% AMI, however 45% of renters fall below this income level, and only 1% of units are affordable to very low income households earning less than 30% AMI. Our community is already in an extreme housing crisis; the loss of these units would be staggering, and the subsidy irreplaceable. Preserving these homes is the most cost-effective strategy for ensuring that our most vulnerable community members are able to maintain housing affordability. We sincerely hope that the City of Bozeman will agree to assist with this effort. Sincerely, Tracy Menuez Associate Director Community Housing Fund Application Score Tally Sheet Project Name: Darlington Manor/Boulevards Apartments Preservation, HRDC Date of presentation to CAHAB: 9-9-2020 Date of CAHAB Review and Recommendation: 10-14-2020 Scale CAHAB Average Points Awarded City Staff Points Awarded Criteria used to score all proposals Alignment with Community Housing Action Plan: 1-5 22 5 Ability of this project to address a community need: 1-5 25 5 Target Income: 1-5 25 5 Opportunity Cost: 1-5 17 5 Level of partnership with other organizations: 1-5 20 3 Alternate funding sources have been secured / solicited: 1-5 25 3 Funds Availability: 1-5 20 3 Willingness to be flexible in grant / loan request: 1-5 15 4 Thoroughness of the application / budget: 1-5 23 4 Viability of the proposed project: 1-5 20 3 Total Proposal Base Points: (30 or more required for Proposal Consideration) 42.5 40 Criteria to be scored for proposals resulting in dwelling units Scope of project in terms of # of affordable housing units built / preserved: 1-5 24 5 Project’s generation of long-term or permanently affordable housing: 1-5 25 5 Requested investment of Community Housing funds per unit: 1-5 10.5 3 Ongoing project affordability: 1-5 22 5 Total Dwelling Unit Points: 16.3 18 Grand Total: (42 or more required for dwelling unit Proposal Consideration) 58.8 58 % calculated by dividing Grand Total Points by 42 (or 30 without dwelling units) 140% 138% Milestone Date Acquire Interest in Darlinton Jul-20 Submit Tax Credit and Bond Applications Darlinton and Blvd Aug-20 HTF, City Funds, Risk Share Loan Submit Application for HTF Sep-20 Submit Application for City Funds Aug-20 Request to MBOH for Risk Share Loans Sep-20 Order Third Party Reports Appraisals Environmental Phase 1/Radon Lead/Asbestos Rent Comparability Studies Market Studies Survey Design and Engineering Architectural Drawings Engineering Scope Finalization Aug-20 Plan Check Submission Sep-20 Permit Nov-20 Contractor Select Contractor Sep-20 Finalize Scope Oct-20 Review subcontractor Bids Sep-20 Finalize Schedule of Values Oct-20 Finalize Construction Contract Oct-20 Finance and Legal Select Investor and Lender Aug-20 Due Diligence Process Aug-Oct 2020 Underwriting Aug-Oct 2020 Partnership Oct-20 Loan Documents Oct-20 Bond Documents Oct-20 HUD Documents Oct-20 HTF Documents Risk Share Loan Documents HUD Process Submit Applications for MUTM Aug-20 Submit Application for Mod/Rehab Aug-20 Complete HUD Legal Review Sep-20 Receive HUD Approval Oct-20 Close on the Financing Nov-Dec-20 Issue Notice to Proceed Dec-20 Construction Mobilization Dec-20 Begin Unit Renovations/Relocation Jan-21 Construction Completion Mar-22 Temporary Certificate of Occupancy Jan-22 Certificate of Occupancy Mar-22 Stabilization - 90/90 Test Jul-22 Process 8609 Final Cost Cert May-22 Submit PIS Application to MBOH May-22 Receive 8609 Aug-22 Blvd/Darlinton Schedule Uses Acquisition 12,500,000 Rehabilitation 7,484,750 Furnishings 245,217 Contingency 741,000 Relocation 775,500 Architect and Engineering 381,000 Construction Financing Fees and Interest 2,186,511 Permanent Financing Costs 318,177 Legal 130,000 Reserves 760,776 LIHTC Syndication Costs 462,679 Permitting 61,304 Developer Fee 3,478,213 TOTAL USES 29,525,127 Construction Sources Construction Loan 21,000,000 LIHTC Equity 1,845,233 Developer Note 2,568,948 Housing Trust Fund 1,000,000 City of Bozeman 500,000 Deferred Developer Fee 2,610,946 TOTAL CONSTRUCTION SOURCES 29,525,127 Permanent Sources Permanent Loan 16,277,508 LIHTC Equity 7,380,932 Developer Note 2,568,948 Housing Trust Fund 1,000,000 City of Bozeman 500,000 Rehab NOI 571,852 Deferred Developer Fee 1,225,887 TOTAL PERMANENT SOURCES 29,525,127 Boulevards/Darlinton Budget