To: Honorable Mayor and Members of City Council
From: Molly Rattigan, Community Resources and Development Director
Prepared By: Stephanie Gaul, Housing Manager
TITLE:
Title
Loans for Affordable Home Ownership Units at The Crescent
LABEL
RECOMMENDED ACTION:
Recommendation
Adopt a resolution authorizing the City Manager to negotiate and execute documents to make two separate loans to Napa Community Real Estate Fund, LP and Napa CREF Redwood LLC for a total amount of up to $3,761,224, with .5% interest, from the City of Napa 1% Transient Occupancy Tax for Affordable and Workforce Housing Fund for the Redwood Building of The Crescent Project, which includes 40 new construction units, located at 2344 Old Sonoma Road and determining that the potential environmental effects of the actions authorized by this resolution were adequately analyzed by a previous CEQA action or are exempt from CEQA.
Body
DISCUSSION:
In October 2021 and October 2022, City Council approved a combined loan reservation of $3,761,224 of 1% Transient Occupancy Tax for Affordable and Workforce Housing for The Crescent, a homeownership project proposed at the site of the former County of Napa Health and Human Services campus, located at 2344 Old Sonoma Road (the “Project”). The Project is being undertaken by the non-profit housing developer Heritage Housing Partners (the “Developer”). The first phase of the Project, named the Redwood Building, will include 40 stacked flat style units consisting of seven one-bedroom and 33 two-bedroom units. All the restricted units will be sold to income eligible buyers with four one-bedroom units and 21 two-bedroom units available to households earning up to 80% area median income while three one-bedroom and 12 two-bedroom units would be available to households earning up to 120% area median income.
The Project, which was entitled in May 2023, has assembled all necessary financing to move forward with construction of the Redwood Building. The Developer anticipates construction will begin in winter 2025 and the Redwood Building will be completed and ready for occupancy in fall 2027.
The City’s loans will be leveraged with several funding sources. Other sources of proposed financing include conventional construction loan, the County of Napa, State of California CalHome, and New Markets Tax Credits. New Markets Tax Credits are a federal financing tool designed to attract private investment in low-income or economically distressed communities. To accommodate the New Markets Tax Credits financing structure, the City’s total $3,761,224 loan commitment will be disbursed in the form of two loans made to two entities that are part of the overall structure. The first loan of approximately $2.28M will be made as a loan directly to Napa Community Real Estate Fund LP as part of the New Markets Tax Credits structure to leverage the equity investment in the project and allow for use of a larger allocation of tax credits. The second loan of approximately $1.48M will be provided as a direct subordinate loan to the Napa CREF Redwood LLC, which will own the Property and construct the housing units (Napa Community Real Estate Fund LP is a 95% member of Napa CREF Redwood LLC).
While the timing of the disbursement of the two loans is expected to occur concurrently or near-concurrently with the financing close, providing the funds through two separate components of the financing structure will require the execution of two distinct loan and security instruments.
The City will record and enforce an affordability covenant on the property during construction. Upon project completion and sale of individual units to qualified homebuyers, the City’s loan will be converted to a pro-rata mortgage for the fifteen homeowners in units targeted for affordability levels at 120% area median income. Each unit will include a resale restriction agreement to preserve affordability for a period of 45 years.
The portion of City funding utilized as leverage in the New Market Tax Credits structure will not be repaid to the City during the seven-year tax credit compliance period. After the individual homes are sold and during the tax credit compliance period, the Community Development Entity which receives the City’s leverage loan through a subsequent loan from Napa Community Real Estate Fund LP, will hold pro-rata mortgages with fifteen individual moderate income homeowners, equal to the amount of the City’s leverage loan, and a resale restriction agreement to ensure the ongoing affordability of the units. The City will not have the ability to recall, amend, or otherwise modify the leveraged loan during the tax credit compliance period, but at the end of the period, the individual mortgages will be conveyed by the Community Development Entity to the City as repayment for its leverage loan. The City will then hold the mortgages and resale restriction agreements to ensure the ongoing affordability of the units.
The City’s two loans in a total amount of $3,761,224 will each be at a .5% interest rate and will ensure affordability for a term of 45 years following sale to individual homeowners. Repayment of the loans will be dependent on the future transfer of ownership of each unit.
FINANCIAL IMPACTS:
This item has no impact to the General Fund. The funding was previously committed in the City’s 1% Transient Occupancy Tax for Affordable and Workforce Housing Fund (25512500-53822). There is currently an uncommitted fund balance of approximately $6.1 million available for other affordable housing projects.
CEQA:
Staff recommends that the City Council determine that the potential environmental effects of the Recommended Action described in this Staff Report (i) were adequately evaluated and addressed in the Napa General Plan Update Final EIR (SCH #2021010255) certified by the City Council on September 20, 2022 (the “2040 General Plan EIR”), the Recommended Action will not have any new or substantially more severe environmental effects that were not identified and addressed in the 2040 General Plan EIR, and no additional environmental review is required, as mandated by and consistent with Public Resources Code Section 21083.3 and Sections 15168 and 15183 of the CEQA Guidelines or (ii) are exempt from CEQA, pursuant to CEQA Guidelines Section 15301 (minor alterations to existing facilities) and Section 15303 (construction and location of limited numbers of new, small facilities or structures; installation of small new equipment and facilities in small structures).
DOCUMENTS ATTACHED:
ATCH 1- Resolution
NOTIFICATION:
Heritage Housing Partners and the County of Napa were notified of this item.