FROM:
Housing
SUBJECT:
Title
Homekey2 Project and Application Resolution
End
RECOMMENDATION:
Recommendation
1. Approve an affordable housing project containing 10 to 14 units of interim housing for chronically homeless, homeless households, or households at risk of homelessness and up to seven units of market rate housing to be sited at most two Fontana Housing Authority and City of Fontana owned properties located at 8996 Olive Street and 8344 Bennett Avenue.
2. Adopt Resolution No. 2022-002, a resolution of the City Council of the City of Fontana authorizing application to and participation in the California Department of Housing and Community Development Homekey program.
3. Authorize the City Manager to execute and transmit any documents necessary or appropriate to ensure the City's timely submission of the Homekey application, inclusive of an Funding Commitment letter demonstrating the City’s intent to commit Permanent Local Housing Allocation (PLHA) funds not to exceed $1,312,326 to support project operating expenses for up to 4-years, and the City’s intent to commit up to $992,936 in development costs for non-assisted units from either PLHA or Housing Trust funds.
End
COUNCIL GOALS:
• To concentrate on inter-governmental relations by pursuing financial participation from county, state and federal governments.
• To promote affordable housing by acquisition, substantial rehabilitation, and professional management of selected multi-family properties as a vehicle to reduce crime and code enforcement activity and to address the affordability needs of this community
DISCUSSION:
The California Department of Housing and Community Development (HCD) has made available approximately $1.45 billion in Homekey funding to sustain and rapidly expand the inventory of housing for people experiencing homelessness or At Risk of Homelessness (collectively the “Target Population”) and who are, thereby, inherently impacted by or at increased risk for medical diseases or conditions due to the COVID-19 pandemic or other communicable diseases. Before the COVID-19 pandemic, homelessness data showed Black, Indigenous, and People of Color (BIPOC) were overrepresented in the homelessness system. The pandemic made racial disparities more apparent, and communities are dealing with the additional disproportionate impact of illness and death among people experiencing homelessness.
Homekey, Round 2 (Homekey2) is defined in an extensive Notice of Funding Availability made public by HCD on September 9, 2021. The program is designed to support development of a broad range of housing types as Permanent or Interim Housing for the Target Population including specified sub-populations. Eligible uses include acquisition and/ or rehabilitation. Eligible projects include multifamily rental housing and, shared housing or scattered site housing under common ownership. Interim Housing Projects must be encumbered with a 15-year covenant, or similar recorded use restriction. Mixed projects with assisted and unassisted units are permitted, however only costs for assisted units will be eligible for Homekey funds.
Homekey2 awards will be made based on scored applications. In addition to capital expenditures the program will provide an operating subsidy based on an annualized calculation per assisted door. Early submission before February 1, 2022, is strategically beneficial, because the applicant pool is limited to defined geographies and bonus funds are awarded. Bonus points and funds are also awarded for quickly reaching full occupancy.
Overview: The City proposes a Homekey2 project which would add 10 to 14 units of interim housing and preserve up to seven units of market rate housing to the community, in a project totaling 17 units. The final determination of the assisted units to be provided will be based on responses from HCD regarding inquiries made relevant to the structure of the project. This report presents maximum project costs based on a 17-unit project, 14 of which are assisted.
Assisted units, providing wrap around supportive services, would be for those inherently impacted by COVID-19 by nature of being homeless or chronically homeless, or at risk of homelessness, who are residents of San Bernardino County and preferably the City of Fontana. The units, spread over up to two City and Housing Authority owned properties, would be operated as a cohesive project by Quality Management Group (QMG) as the property manager, and Water of Life (WOL) as the lead service provider.
Development Budget & Cash Flow:
|
Development Budget |
|
Cost |
Amount ($) |
|
Land Cost/ Acquisition |
1,479,175 |
|
Rehabilitation |
452,232 |
|
Relocation Expenses |
114,493 |
|
Reserves |
410,171 |
|
Other Costs |
100,300 |
|
Developer Costs |
57,606 |
|
Total Project Costs |
2,613,977 |
Total project costs are estimated at a maximum of $2,613,977. This includes $1,479,175 in acquisition and closing costs, $452,232 of rehabilitation, $114,493 for relocation, $410,171 in reserves, $100,300 in other costs (furnishings and Policy of Title Insurance), and $57,606 in developer costs. No capital match is required. However, the City will be required to fund development costs for unassisted units, which represents the pro rata development expense for non-assisted units, and can be derived from the City’s PLHA allocation or Housing Trust Fund, subject to City Council approval. In the model presented here the costs to the city will be $444,029.
Rent will be derived from three, currently existing, market rate units. Current rents are under review by the City. For the purposes of this model rents are unchanged, which will result in adjusted project rental income in year 1 of $43,890.
Operating expenses in year 1 are estimated at $394,141. This includes $62,364 in supportive services staffing, $59,950 in additional supportive services, $60,320 in property management staffing, $147,850 in property management and operating expenses, $43,657 in fringe benefits for all staff, and a replacement reserve of $20,000.
To access the maximum Homekey2 operating subsidy, the City will commit 4 years of operating match to the project, which is estimated to be $1,312,326 and is subject to Council approval can be derived from the City’s PLHA allocation. The City seeks a total Homekey2 award - capital, operating subsidy, and bonus awards - of $3,054,395. With the Homekey2 operating subsidy there is no operating deficit for the first 2 years. Over 15 years, the cumulative cash flow deficit is estimated at $5,972,798, which the City will be responsible for securing.
|
Proforma Cash Flow |
|
Cost |
Year 1 ($) |
Year 15 ($) |
|
Effective Gross Income |
43,890 |
62,015 |
|
Total Expenses & Reserves |
394,141 |
593,158 |
|
Net Operating Revenue/Deficit |
(350,251) |
(531,143) |
|
Homekey2 subsidy draw |
350,251 |
- |
|
Net Cash Flow |
- |
(531,143) |
|
Cumulative Net Cash Flow |
- |
(5,972,798) |
Property Descriptions:
The presented project is comprised of at most two properties, owned by the Fontana Housing Authority or the City of Fontana, and inclusive of the following: 8996 Olive Street and 8344 Bennett Avenue.
The Olive Street property contains ten 2-bedroom units. The property lot size is 18,900 square feet, with 8,280 square feet of floorspace.
The Bennett Avenue property contains seven units: six 2-bedroom units and one 3-bedroom unit. The property lot size is 18,000 square feet, with 6,310-square feet of floorspace.
For Unit Distribution by Target Population reference Exhibit A.
SUMMARY OF FISCAL IMPACTS:
|
Cost |
Amount ($) |
|
Grant Request |
3,054,395 |
|
Total Project Costs |
2,613,977 |
|
Development Costs to City |
444,029 |
|
Cumulative Net Cash Flow Y1 |
- |
|
Cumulative Net Cash Flow Y15 |
(5,972,798) |
|
Average annual operating deficit over 15 years |
(398,187) |
The Homekey program stipulates the City will be required to enter into a 15-year covenant agreement for provision of the project’s interim housing under the terms of HCD’s Standard Agreement. Every effort has been made to project anticipated costs over the duration of the covenant in accordance with HCD stipulated provisions and requirements. However, as with all long-term projections, forecasting with any degree of certainty is difficult at best.
The project was initially structured with all 21 units dedicated to the Target Population; however, when the proforma disclosed the City would be required to provide $55,725,804 in operating subsidy over its 55-year term, an alternative project structure was developed. This led to the recommended Interim and market rate housing option, providing 14 units of Target Population housing, and three units of market rate housing; resulting in a sizable yet manageable 15-year operating subsidy expenditure to the City of $5,972,798, while maintaining eligibility for Homekey funding.
FISCAL IMPACT:
If awarded by the State, and approved by the City Council, the applicable revenue and expenditure budgets will be adjusted at one of the quarterly budget meetings. The City of Fontana will authorize the use of Permanent Local Housing Allocation (PLHA Fund #295) funds to fund any deficit.
MOTION:
Accept staff recommendation.