August 12, 2009 > Apton Plaza developer seeks funding from Redevelopment Agency
Apton Plaza developer seeks funding from Redevelopment Agency
By Simon Wong
Apton Properties, LLC, developer of Apton Plaza, a mixed-use project on North Main Street and Weller Lane, requested a $4.4M loan from the Redevelopment Agency (RDA). $4.4M loan from the Redevelopment Agency (RDA).new Memorandum of Understanding (MOU).
The loan would help builder USA Properties Fund scale back its competitive application for housing tax credits to $30M which would add $19.8M of equity to the affordable, rental housing project. The builder has also applied for $3.4M of federal stimulus funding.
The project consists of 93 residential units, within three stories above an at-grade parking structure, and 174 parking spaces. The redevelopment parcel is 1.6 acres.
The RDA and the applicant originally entered into an owner participation agreement (OPA) in October 2004. The RDA invested $1.2M in the project which would include 19 affordable rental units.
The terms of the OPA have been amended twice. In December 2004, it was agreed that units would be for-sale condominiums, not rental. In August 2005, the unit count was reduced from 96 to 93.
In June 2008, the entire project became affordable rental with State tax credits and no RDA funding. The original builder, Global Premier, applied unsuccessfully for State funding. Apton Properties and USA Properties Fund now wish to enter into a new MOU that would inject RDA capital into the project.
Apton Properties would use the $4.4M loan, at 3.5 percent fixed for 40 years, to purchase land. Appraisals value Milpitas land at $2.2M per acre. USA Properties Fund's budget values an acre at $4.6M. The 1.6 acre parcel will cost $7.4M.
The non-recourse loan would be subordinate to other project financing. Not only is there no recourse to the borrower's assets other than the property, 93 units represent insufficient security for the loan. Furthermore, the RDA's loan asset could be wiped out if a senior lender should foreclose.
The builder is a non-profit applying for State tax credits and the property would be removed from the tax roll. Consequently, the RDA will not receive tax increment revenue from the project, in its current [June 2008] form, whose $22.4M assessed value would otherwise have generated $118,000 of tax increment revenue annually, or $4.7M over the next 40 years. In May 2009, USA Properties Fund proposed an annual Affordable Housing Administration payment of $45,000 to the City's General Fund to compensate for lost revenue associated with further investment.
City Staff recommended denial of the request for a new MOU and funding because the RDA will not receive any tax increment revenue. Additionally, repayment of the $4.4M loan depends upon the project's financial viability; specifically, half of the project's surplus after expenses would fund debt service. There is no guarantee of consistent performance and the RDA would be one of the last creditors to be paid.
Moreover, the proposed annual $45,000 payment might benefit the General Fund but is deemed an inadequate substitute for the RDA's lost tax increment and not a feasible way of repaying the loan.
The preferred option is to leave the original MOU unchanged and provide revised funding for the 19 affordable units so the RDA can benefit from the tax increment, viz. 93 for-sale condo units consisting of nine very low-income, 10 moderate-income and 74 market-rate units with no state tax credit financing.
USA Properties Fund modified its proposal in response to Staff's concerns. First, use 75 percent of surplus receipts to service debt at the start of the fourth year. Second, refinance the project in the fifteenth year to settle the interest and pay down the principal by $3M to $1.4M, repayable over the remaining 25 years.
"There are compelling reasons to proceed," said Steve Gall, Senior VP, USA Properties Fund. "The State will borrow property taxes from your General Fund. Our $45,000 annual payment would go to the General Fund and move monies out of the City's 20 percent set-aside account to impact-fee accounts [fees levied by local government on new or proposed development to help pay for the capital costs of providing the development with public services] and the General Fund. The project generates about $2M of impact fees.
"4,000 sq. ft. of commercial space will yield annual property and sales tax revenues of $10,000 and $20,000, respectively. The community facilities district's levy for the project is $17,000 per annum for City services. The $17M project cost will create $35M of economic benefit projected to increase by $2.4M annually.
"The project makes sense from an investment perspective. The City will have received about $6.5M after 15 years," concluded Gall.
"The revisions represent faster pay-back for tax payers," observed Mayor Livengood. "In the case of Aspen on South Main Street, the developer built affordable units and another paid the affordable price for them. Apton Plaza apartments are effectively an "over-build" of affordable housing worth, say, $50,000 per door to the City, not to the developer. Another developer can pay an in-lieu fee of $50,000 per unit to the City. The receipts would defray the $4.4M cost to taxpayers. The RDA would recoup its money in four to seven years.
"I'm comfortable with USA Properties Fund's revised proposals, if an affordable-housing, in-lieu policy is implemented soon so the RDA recoups its investment in this project. The applicant will remain liable for repayment of the $4.4M loan," stated the Mayor.
Council voted (5-0) unanimously to accept the applicant's repayment proposals for a $4.4M loan, for Staff to consider an in-lieu fee for the project and report to Council and for the MOU to specify that the RDA, and not the property owner, receive sale proceeds from these units.