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HomeMy WebLinkAboutAgenda - 01-20-2011 - 7aORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: January 20, 2011 Action Agenda Item No. ~ " Q SUBJECT: Long-Term Affordability Policy Exception Request DEPARTMENT: Housing, Human Rights and PUBLIC HEARING: (YIN) No Community Development ATTACHMENT(S): Long-Term Affordability Policy INFORMATION CONTACT: Letter from Community Home Trust Tara L. Fikes, 245-2490 PURPOSE: To consider a request from the Community Home Trust (CHT) to allow a change in the period of affordability for aloes-income housing tax credit project known as The Landings at Winmore. BACKGROUND: In 2000, the Orange County Board of Commissioners approved along-Term Affordability Policy that requires all housing projects receiving County funding to execute a Declaration of Restrictive Covenants that requires the property to remain affordable for 99 years after receiving public funding. Since that time all housing projects have been subjected to this requirement with the exception of projects utilizing the land trust model which utilizes a 99 year ground lease model to ensure long-term affordability. The Community Home Trust (CHT) received $300,000 in local HOME Investment Partnership Program funds in 2007 to assist with the development of a 58 unit low income housing tax credit project in Carrboro known as The Landings at Winmore. Crosland LLC is the project developer and has entered into a partnership agreement with CHT that provides a right of first refusal to Community Home Trust to purchase the property in 15 years and maintain the units as affordable rental property. The NC Low Income Housing Tax Credit (LIHTC) Program has a 30 year period of affordability requirement and both CHT and Crosland are petitioning to have the County's Declaration of Restrictive Covenants also require a 30 year period of affordability instead of 99 years. This request is primarily being made because of the NC LITHC Program requirement of a 30 year affordability period and because CHT contends that this arrangement "meets the spirit of the County's desire for 99 year affordability". County staff have reviewed this request, spoken with officials from the NC Housing Finance Agency about the requirements of the State's LITHC Program, and have determined that the County's 99 year requirement does not cause any undue hardship to this project. Thus, staff cannot identify a reason to allow this exception to policy. Additionally, there have been no exceptions to the 99 year affordability period since policy implementation. As additional information, construction of the apartment complex is now nearly complete and occupancy is expected in the next three months. The developers are seeking HOME funds now to pay costs that were advanced to the project as noted in the attached letter. FINANCIAL IMPACT: The County has allocated $300,000 in HOME Investment Partnership Program funds to this project. RECOMMENDATION(S): The Manager recommends that the Board reject this request at this time. It may be worthwhile to re-evaluate at a future date the reasonableness of the 99 year requirement and after further analysis modify that term to a shorter period. The 99 year requirement may become a hindrance for future projects. Changing industry standards and new regulations impacting financing of projects of this nature may reduce future projects. The 99 year requirement may negatively impact the ability of developers to finance projects or refinance existing projects to fund uplifts or remodeling costs. 3 Long-Term Housing Affordability Policy Pur ose• This policy establishes the acceptable strategies for ensuring long-term affordability in all affordable housing programs supported by County financial resources. Target Poaulation: Homeownership programs are targeted to families with incomes at or below 80% of the HUD published area median income. Rental housing programs are targeted to families with incomes at or below 60% of the HUD published area median income. Definitions Affordable Housing - is defined as (1) owner-occupied housing which can be purchased for no more than 2.5 times to 3.0 times the total annual family income, or (2) rental housing for which the occupant pays no more than 30% of gross income for all housing costs including utilities. First-time homebuyer/Qualified buyer - A first-time homebuyer for the purposes of this program is any low income household that has not owned a home within the past three (3) years including households living in manufactured housing not permanently affixed to a foundation, or owner-occupants of homes not feasible for renovation. I. Impact Fee Reimbursement Program (existing policy last revised March 4, 1998.) A. Owner-Occupied Housine Any organization requesting impact fee reimbursement must certify in writing, that, for owner occupied housing, it will remain affordable to the anticipated beneficiary or beneficiaries for a period of a minimum of ninety-nine (99) years or longer depending upon the funding source. This requirement will be secured by a Declaration of Restrictive Covenants. B. Rental Housing An organization requesting impact fee reimbursement for rental housing must certify that the property will remain affordable for ninety-nine (99) years. The rental housing certification must be secured by a Declaration of Restrictive Covenant requiring repayment to Orange County of the impact fee if the rental housing does not remain affordable during the period of affordability, which covenant will be further secured by a note and deed of trust. Evidence must be provided that agency and/or program guidelines are in place to assure affordability. compliance. II. Land Trust Model Lthapolicy.doc 4 The Land Trust model utilizes anon-profit, community based organization known as a Community Land Trust (CLT) whose purpose is to acquire land and make it available to individual families and others, such as cooperatives, through along-term lease for a term up to 99 years. The leaseholders or homebuyers do not hold title to the land -the title is retained by the CLT -they own the improvements or housing units/structures on the land. The benefits of this model include the ability of the CLT to provide first-time homeownership opportunities for the initial buyer as well as protection of affordability for future residents in the sale of buildings and other improvements on the land. The land lease gives the CLT the first option to purchase the home, when and if it is sold, at an affordable price set by a resale formula. The resale formula gives homeowners a fair return for their investment, while keeping the price of the housing units/structures affordable for future residents. III. New and Existing First-Time Iiomebuver Programs A. Period of Affordability All properties supported by County financial resources for the purpose of facilitating homeownership must remain affordable to families at or below 80% of median income for a minimum of ninety-nine (99) years from the date of initial assistance. B. Right of First Refusal A right of first refusal or right to purchase is accomplished by means of a Declaration of Restrictive Covenants on the property purchased by the first-time homebuyer. Any assignment, sale, transfer, conveyance, or other disposition of the Property or any part thereof whether voluntarily or involuntarily or by operation of law ("Transfer") shall not be effective unless and until the below-described procedure is followed. If the original homebuyer or any subsequent qualified homebuyer ("Buyer"} contemplates a Transfer to a non low-income household as defined herein, Buyer shall send to Orange County and/or the sponsoring non-profit organization, not less than 90 days prior to the contemplated closing date of the Transfer, a "Notice of Intent to Sell." This Notice of Intent to Sell shall be accompanied by a copy of a completed, fully executed bona fide offer to purchase the Property on the then current North Carolina Bar Association "Offer to Purchase and Contract" form. If Orange County and/or the sponsoring non-profit organizations elects to exercise its said right of refusal, it shall notify the Buyer of its election to purchase within 30 days of its receipt of the Notice and shall purchase the Property or portion thereof within 90 days of the receipt of the "Notice of Intent to Sell." As between the County and the sponsoring non-profit organization, if both wish to and have the means to exercise the right of first refusal, the sponsoring non- profit organization shall have priority. If neither Orange County nor the sponsoring non-profit organization advise the Buyer in a timely fashion of an intent to purchase the Property, then the Buyer shall be free to Transfer the property in accordance with the Equity Sharing subsection of this policy. 2 Lthapolicy.doc 5 B. Equity Sharing All financial contributions provided by the County will be provided as a deferred second loan secured by a forty (40) year Deed of Trust and Promissory Note, forgivable at the end of 40 years. This Deed of Trust and Promissory Note shall constitute a lien on the Property; subordinate only to private construction financing or permanent first mortgage financing. . The 99 year period of affordability for each individual housing unit will be secured by a declaration of restrictive covenants that will incorporate a right of first refusal that may be exercised by a sponsoring non profit organization and/or Orange County. This declaration of restrictive covenants witl be further secured by a deed of trust. The non-profit organization and/or the County as applicable retains full responsibility for compliance with the affordability requirement for assisted units throughout the term of affordability, unless affordability restrictions are terminated due to the sale of the Property to anon-qualified buyer. If the buyer no longer uses the Property as a principal residence or is unable to continue ownership, then the buyer must sell, transfer, or otherwise dispose of their interest in the Properly only to a qualified. homebuyer, i.e., aloes-income household, one whose combined income does not exceed 80% of the area median household income by family size, as determined by the U.S. Department of Housing and Urban Development at the time of the transfer, to use as their principal residence. However, if the properly is sold during the term of affordability to anon-qualified homebuyer to be used as their principal residence, the net sales proceeds (sales price less: 1) selling cost, 2) the unpaid principal amount of the original first mortgage and 3) the unpaid principal amount of the initial County contribution and any other initial government contribution secured by a deferred payment promissory note and deed of trust) or "equity" will be divided 50/50 by the seller of the Property and the County. If the initial County contribution does not have to be repaid because the sale occurs more than forty years after the County contribution is made, then the seller of the Property and the County will divide the entire equity realized from the sale. Any proceeds from the recapture of funds under this provision will be used to facilitate the acquisition, construction, and/or rehabilitation of housing for the purposes of promoting affordable housing. IV. Policy Review This policy will be reviewed by County staff and officials within two (2} years of the original approval date to ensure continued congruency with local affordable housing programs. Effective Date: April 3, 2000 Revised: June 6, 2000 3 Lthapolicy.doc 6 December 20, 2010 Dr. Tara Fikes Housing and Community Development Orange County PO Box 8181 Hillsborough, NC 27278 Dear Tara: This letter is in response to your email asking about the need for HOME funds at the affordable rental project in the Winmore development known as The Landings at Winmore. As you know Community Home Trust is not the developer ofThe Landings. When we applied for the HOME funds in 2007, I did not fully understand what the Home Trust's role would be in this development. However, I was convinced that notwithstanding our role, the Landings was a much needed rental project for the Chapel Hili /Carrboro area. 1 also believed BOARD OF the development proposal enabled our community to leverage a modest amount of HOME TRUSTEES funds per unit to create fifty-eight affordable apartments in an upscale neighborhood. !n short, Mary Bratsch I viewed this as a unique opportunity that hopefully would warrant an allocation of HOME Presidnst funds. Michael Hansen l/ice Presidart The develo er of The Landin s Dean Edwards, has told me there were ro ect costs incurred p g' p j that were loaned to the project by Crosland LLC as the Managing Member of the The Landings Mary Jean Seyda during construction. Mr. Edwards informs me that these costs, some of which are outlined Trcns:rrcr below, were not funded by the Bank of America construction loan. As you can see, the costs Lisa Inman well exceed the $300,000 of. HOME funds that were approved for this development. SccrcAtry John Cooper It is my understanding that the $300,000 of NOME funds are needed to repay funds advanced by Crosland far this development. The costs provided to the Landings by Crosland include: Jacquelyn Gist Eric Hallman Land Option Costs $20,000.00 Bank of America Closing Costs $66,300.00 Pam Hemminger pre-development Costs $1,526.49 Architect Fees $238,939.97 Alan Lee Survey & Engineering Fees $147,711J0 Gene Pease Appraisal $3,000.00 Solis Investigation $3,625.00 Bruce Runberg Jim Tucker As you can see, these costs totalabout $480,000. Jonathan Weiler A second question has been the length of the affordability period, which is typically 99 years for L-xecuti~~e Director any projects that include funding from Orange County. The developer has raised questions Roircrt Dowlnig about the practicality of a 99-year affordability period in the event that Community Home Trust is unable to purchase the property. As you know, Community Home Trust has a Right of First Refusal for The Landings. Although our intention is to exercise this right and maintain these units as affordable rentals in perpetuity, market conditions and our own financial strength will determine if we are able to exercise this right and purchase the buildings. However, in any case, the developer informs me that the senior financing for the project provided by the NC pG. Box 347", Carrboro, NC 27510 ~ 919-967-1545 ~ _,°i ~,r~,~;=;~, ~,~~~;i}aa , ,;;a ri,~ ,_~:;_;_j 7 Housing Finance Agency requires The landings to remain affordable for 30 years. I believe the 30-year required affordability period, plus the Right of First Refusal meets the spirit of the County's desire for 99-year affordability. Obviously, we are unable to predict what market conditions will be like in 1S years to know for certain that the Home Trust will be in a position to execute the Right of First Refusal. Tara, 1 continue to believe The Landings at Winmore represents a great opportunity for families below 609 of median income to live in affordable, well-maintained housing. The fact that The Landings is located within anewly-developed, market rate neighborhood is also advantageous because it furthers the inclusivity we strive for in Orange County. In the spirit of full disclosure, Community Home Trust has signed a Homebuyer Counseling contract with the developer which requires that we arrange to provide quarterly credit counseling and homebuyer education counseling to the tenants of the landings. The developer has agreed to compensate Community Home Trust for services provided with a $10,000 fee at closing and $2,000 per quarter. Please let me know if you have additional questions about the HOME funds or our role in this development. Thank you for your assistance. Sincerely, 1J1 ~C%`~C~ ~ ~~ .~ Robert Dowling Executive Director P.O. Box 307, Cnrrboro, NC 2510 ~ 9i9-967-1545 ~ ~'.i'~"n ~ 1_ail_)~111~j; ?,~;~~r~~~