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19-0716_C&C DEVELOPMENT CO., LLC_F1a_Agenda ReportTO: FROM: SUBM ITTED BY: PREPARED BY: DATE: SUBJECT: City of San Juan Capistrano Agenda Report Honorable Mayor and Members of the City Council ~jamin Siegel, City Manage r Joel Rojas , Development Services Directory Laura Stokes , Housing Supervisor I Associate Planner ()1 July 16, 2019 7/16/2019 F1a Resolution Approving Disposition and Development Agreement for a Proposed 75-unit Senior Affordable Housing Apartment Complex on 3.853 Acres of City-Owned Property Located at 30333 Camino Capistrano. (The Groves) (C&C Development) RECOMMENDATION: Adopt a resolution approving the Affordable Housing Disposition and Development Agreement between the City of San Juan Capistrano and C & C Development Co ., LLC, and Sean Rawson, an individual, for development of the Groves site. EXECUTIVE SUMMARY: The City owns approximately four acres of property located at the northwest corner of Camino Capistrano and Junip ero Serra Road that is referred to as "the Groves site " (Attachment 1 ). The property is identifi ed in the City's Housing Element as a potential site for up to 48 units of affordable housing. Because the City has unmet goals for low income housing units under its current Housing E lement and Regional Housing Needs Assessment, on Apri l 4 , 2019, the City Council entered into an Exclusive Negotiation Agreement (ENA) with C & C Developm ent Co., LLC (C&C) to explore the possibility of developing the Groves site with approximately 50-68 units of affordable senior housing (age 62 and over), including up to ten Permanent Supportive Housing units for seniors. The purpose of the ENA is to allow time for both parties to negotiate an Affordable Housing Disposition and Development Agreement (DOA), which sets the terms for the acquisition of the City property by C&C and Sean Rawson , an individual who is partnering with C&C in the development, along with the funding and development terms of the proposed affordable housing project (Attachment 2). The City anticipates that C&C and Mr. Rawson will establish a limited partnership controlled by C&C that will actually construct , own and ope rate the affordable housing development, and the righ ts City Council Agenda Report July 16, 2019 Page 2 of 7 and obligations under the DOA and associated agreements will be assigned to the limited partnership. This is customary for affordable housing developments, as a limited partnership must be formed to secure low income housing tax credit investors. C&C and Mr. Rawson, and the limited partnership that they will ultimately form, are referred to in this staff report as the Developer. City staff, in coordination with the City Attorney's office, have negotiated a DOA, which is now before the City Council for consideration. Approval of the DOA is necessary at this time so that the Developer can begin to secure the necessary funding for the project. While consideration of the DDA will precede the project's entitlement review process, City approval of the project entitlements is a contingency of the DOA. Staff is recommending that the City Council adopt the attached resolution (Attachment 2) approving the DOA (Exhibit A to Attachment 2). DISCUSSION & ANALYSIS: City's Regional Housing Needs Assessment and Housing Element Pursuant to state law, the Southern California Association of Governments (SCAG) is responsible for developing the Regional Housing Needs Assessment (RHNA) for the six-county SCAG region. Taking into account population projections and economic forecasts, SCAG calculates the future housing need for every city and county within its jurisdiction for a specified eight-year planning period. The calculated RHNA represents the existing and future housing need of different income groups in each city. Below is the City of San Juan Capistrano's RHNA as calculated by SCAG in 2012 for the current eight-year planning period of October 2014 through October 2021: RHNA 2014-2021 Income Group Percentage of Family of Two Income 2013 Total Percentage of County Area Categories (2019) Housing Units Units Median Income Allocated ExtremelvNervLow 0-50% $0-$28,500 147 23% Low 51-80% $28,501-$76,000 104 16% Moderate 81%-120% $76,001-$94,000 120 19% Above Moderate 120%+ $94,001 + 267 42% Total 638 100% State law requires that each city plan for the existing and future housing need identified in its RHNA allocation. This is done through the Housing Element of a city's General Plan. In order to accommodate San Juan Capistrano's RHNA allocation, the City's Housing Element identifies a list of sites where the City's RHNA allocation (638 units) could be built. The list includes four sites that could accommodate the 371 "affordable" units designated for Very Low, Low and Moderate income groups. One of the identified sites is the Groves site, which the City's Housing Element states could accommodate up to 48 affordable housing units. City Council Agenda Report July 16, 2019 Page 3of7 The Groves Site The Groves site is a 3.853-acre portion of the larger 31.48-acre City-owned Northwest Open Space property that was acquired by the City in 1990. The site is referred to as "the Groves" since the property was once the site of an orange grove. The Groves site is separated from the remainder of the City-owned property by Trabuco Creek and is zoned Very High Density residential. The site is bounded by Trabuco Creek on the north, railroad tracks on the west, Junipero Serra Road on the south and Camino Capistrano on the east. Across Camino Capistrano from the site is JSerra High School, and across Junipero Serra Road from the site is the Silverado San Juan Capistrano Memory Care Community. Proposed Affordable Housing Project On June 24, 2019, the Developer formally submitted the code required applications and plans for development of a senior affordable housing project on the Groves site (Attachment 3). The proposed development is for a three story, 75-unit apartment building with Mediterranean architecture. The apartment building would include 74 units for extremely low, very low and low income senior households and one unit for a manager. The site would additionally accommodate 75 parking stalls, a small dog park area for residents, and a quarter mile accessible walking path around the building. Staff is currently reviewing the application for completeness. Once the application is deemed complete, the application will be presented to the Design Review Committee for review and to the Planning Commission for consideration. Pursuant to the City's Land Use Code, the application does not require City Council review. Therefore, the project applications would not be considered by the City Council, unless the Planning Commission's decision is appealed. Affordable Housing Disposition & Development Agreement (DOA) Development of the proposed affordable housing project is estimated by the Developer to cost approximately $30.9 million. The planned sources of funds are as follows: Tax Exempt Bonds QC/Cal HFA San Juan Capistrano loan San Juan Capistrano land loan OC Gap Financing Deferred Developer Fee Partner Equity Total $7 .9 million $1.6 million $4.8 million $4.1 million $0.7 million $0.6 million $11.2 million $30.9 million Some of these funding sources are very competitive as they are pursued by affordable housing developers throughout the state. Proposed affordable housing projects where the developer either owns the property or has entered into a ODA or similar agreement City Council Agenda Report July 16, 2019 Page4of7 to acquire the property are more generally successful in the competitive process due to the greater likelihood of the project being approved and constructed. Similarly, some funding sources require that the developer has entered into a ODA or similar agreement demonstrating that the developer will acquire the property to even apply for the competitive funding. For these reasons, the Developer is requesting a ODA be entered into prior to the project entitlements being approved by the City. Staff does not believe this to be a concern as City approval of the project entitlements is a contingency of the DOA. A summary of the proposed DOA terms and conditions is as follows: a. Land Transfer: A Lot Line Adjustment is currently being processed by the City to make the Groves site its own legal parcel. Based on a recent appraisal of this 3.853- acre parcel, the City would sell the parcel to the Developer for $4.1 million. The City would carry a loan of $4.1 million for the purchase price, which would be repaid through residual receipts from the operation of the housing development if they become available. The land would only transfer to Developer after it has secured the necessary entitlements, secured all financing necessary to construct the development, and satisfied all other contingencies set forth in the ODA. b. Project Funding: The City would provide a loan to Developer of $4.8 million from the City's Housing In-Lieu Fee fund. These City monies are restricted in that they can only be used for the provision of affordable housing units in the city. The $4.8 million would be repaid through residual receipts if they become available. c. Land Use Approvals: Developer shall be responsible for obtaining all land use entitlements, permits, and approvals for the project required by the City or any other governmental agency having jurisdiction over the proposed project. d. Cost of Construction: Developer shall bear the cost of planning, designing, developing and constructing the proposed project and shall pay all application and development fees imposed on the project by the City or any other governmental agency having jurisdiction over the proposed construction. e. Household Selection Process: Developer will have the sole discretion to determine whether any person or household is qualified to reside in the completed project based upon income restrictions and non-economic qualifications. However, the associated Regulatory Agreement with the City includes a preference for residents of San Juan Capistrano or persons employed in the city. f. Property Management: Developer would be responsible for providing onsite management of the affordable housing facility and maintenance of the property. The City would retain its authority to pursue code enforcement on the property, if necessary. Developer would determine the affordable rents based upon a formula that incorporates the State's maximum rent limits, and would update the rents periodically using the State's formula. Developer would provide leases for a City Council Agenda Report July 16, 2019 Page 5of7 minimum of annual terms, and be solely responsible as landlord for rents, services, and property maintenance. Regulatory Agreement The proposed DOA includes a Regulatory Agreement which requires that 37 of the 75 units (49%) be restricted to income levels that constitute affordable housing. While the entirety of the project is intended to provide affordable housing, the City's Regulatory Agreement can only restrict 37 units as affordable due to Article XXXIV of the California Constitution. Article XXXIV limits jurisdictions' ability to develop, construct, or acquire affordable housing developments unless a ballot measure has been considered by the jurisdiction. Pursuant to California Health and Safety Code Section 37001 (a), so long as a project does not restrict more than 49% of the units for low cost rents, then Article XXXIV would not apply. Although the City's Regulatory Agreement would only restrict 49% of the development to affordable income levels, the California Tax Credits and Tax Exempt Bonds being pursued by the Developer would require all the units in the proposed project (except a manager's unit) to be restricted for affordable housing. Therefore, all the units in the project (except the manager's unit) would eventually be restricted to affordable housing levels and the City would still receive credit for providing 74 affordable units toward meeting its RHNA allocation. Of the 37 units restricted in the City's Regulatory Agreement, ten units would be restricted to Extremely Very Low income households with a gross annual income no greater than 30% of the Orange County median income, as published annually, and would be considered senior Permanent Supportive Housing. The senior Permanent Supportive Housing units would be occupied by seniors who have been identified by the County of Orange as previously homeless and who qualify for long term affordable housing. Up to two of the units would be restricted to Very Low income households with a gross annual income no greater than 50% of the Orange County median income. The remaining 25 units would be restricted to Low income households with a gross annual income no greater than 80% of the Orange County median income. All the affordability covenants would run with the land. State Law Allowed Concessions State law requires local jurisdictions to allow affordable housing projects up to three concessions (exceptions) from Municipal Code development standards. The applicant is requesting the following three concessions from the City's Land Use Code: (1) allowance of a third story; (2) a second floor to first floor ratio which exceeds the 80 percent maximum identified in the Very High Density residential zoning district; and, (3) a reduced front and side yard setback when the Very High Density residential zoning district requires 30' and 20', respectively. These concession requests will be considered by the Planning Commission as part of its review of the entitlement applications. FISCAL IMPACT: As described in this staff report, approval of the DOA would commit the City to $8.9 million in loans (including land) to the Developer for development of an affordable City Council Agenda Report July 16, 2019 Page 6of7 housing project. All costs and expenses related to obtaining the appropriate entitlements and permits, completing the appropriate California Environmental Quality Act review of the project, and constructing and managing the proposed project would be the sole responsibility of the Developer. In addition, the Developer has provided a $25,000 deposit to the City to cover initial staff and City Attorney costs during the term of the ENA and preparation of the DOA. ENVIRONMENTAL IMPACT: The proposed project, including approval of the DOA, is statutorily exempt from CEQA pursuant to Government Code section 65583.2. According to Government Code section 65583.2(h), when sites are re-zoned to accommodate the Regional Housing Needs Allocation ("RHNA") for low and very low income housing, future approval of multifamily rental projects on those sites are considered a "use by right." Government Code section 65583.2(i) defines "use by right" to mean that the review shall not include any discretionary local government action or approval that would constitute a "project" for purposes of CEQA, and therefore, no CEQA compliance would be required. The proposed project qualifies for this CEQA exemption because on January 21, 2014, the City Council approved a General Plan Amendment that identified the site as available for affordable housing in the City Housing Element and on February 4, 2014, the City Council approved a rezoning of the proposed project site from Office Commercial to Very High Density. This rezone implemented the General Plan Amendment that was approved on January 21, 2014. The re-zoning ensured that the City's inventory of housing sites in its Housing Element could accommodate all of the low and very low income RHNA allocation that the City was assigned at the time. PRIOR CITY COUNCIL REVIEW: • On April 2, 2019, the City Council approved an ENA with C&C to consider development of 50 to 68 senior affordable units at the Groves site. • On January 21, 2014, the City Council changed the zoning and General Plan Land Use Designation of the Grove's site from Office to Very High Density residential, and identified the site in the City's Housing Element as being able to accommodate 48 · affordable housing units. COMMISSION/COMMITTEE/BOARD REVIEW AND RECOMMENDATIONS: Not applicable. NOTIFICATION: • C&C Development Co., LLC • Jamboree Housing • Families Forward • Habitat for Humanity • National CORE • Community Development Partners City Council Agenda Report July 16, 2019 Page 7 of 7 • AMCAL Multi-Housing, Inc. • Bridge Housing Corp • Veloce Partners Inc. • Payne Development • Irvine Housing Opportunities • Mercy Housing • Silverado Senior Living ATTACHMENT: Attachment 1 -Location Map • The Olson Company • Love Funding • Meta Housing Corporation • Palm Communities • Eden Housing • JSerra High School Attachment 2 -Resolution approving Affordable Housing Disposition & Development Agreement Attachment 3 -Project Plans