To: Board of Supervisors
From: John Kopchik, Director, Conservation and Development
Report Title: Substantial Amendment to the FY 2023/24 Annual Action Plan - Community Development Block Grant Funds - Aspen Court, Pacheco and Nevin Plaza 1, Richmond
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
1. APPROVE a Substantial Amendment to the County’s FY 2023/24 Annual Action Plan to award a total of $1,725,000 in Community Development Block Grant (CDBG) funds to two affordable multifamily rental apartment projects: Aspen Court Apartments in Pacheco and Nevin Plaza 1 in Richmond.
2. APPROVE a loan of CDBG funds in the amount of $1,000,000 to Aspen Drive Housing, Inc. a California nonprofit public benefit corporation (Aspen Developer), for use in the rehabilitation of Aspen Court Apartments in Pacheco.
3. AUTHORIZE the Conservation and Development Director, or designee, to execute (i) an amended and restated loan agreement between the County and Aspen Developer to incorporate the $1,000,000 loan of CDBG funds into an existing loan agreement between the County and Aspen Developer, and (ii) ancillary documents as needed, all subject to approval by the County Administrator and approval as to form by County Counsel.
4. APPROVE a loan of CDBG funds in the amount of $725,000 to Nevin Plaza I, L.P., a California limited partnership (Nevin Developer), for use in the rehabilitation of Nevin Plaza 1 in Richmond.
5. AUTHORIZE the Conservation and Development Director, or designee, to execute (i) an amended and restated loan agreement between the County and Nevin Developer to incorporate the $725,000 loan of CDBG funds into an existing loan agreement between the County and Nevin Developer, and (ii) ancillary documents as needed, all subject to approval by the County Administrator and approval as to form by County Counsel.
FISCAL IMPACT:
No General Fund impact. CDBG funds are federal funds provided to the County on a formula allocation basis through the U.S. Department of Housing and Urban Development. CFDA Number: 14.218.
BACKGROUND:
Substantial Amendment to FY 2023/24 Annual Action Plan
On May 9, 2023, the Board of Supervisors (Board) approved the Contra Costa County Annual Action Plan for FY 2023/24 CDBG funds (Action Plan). A portion of the CDBG funds were not allocated in the Action Plan and were set aside for future projects. Additionally, after the approval of the Action Plan, the CDBG program received program income that is also available for eligible CDBG projects.
On December 18, 2023, (i) the developer of Aspen Court Apartments in Pacheco submitted an application for $1,000,000 of CDBG funds for the rehabilitation of Aspen Court Apartments, and (ii) the developer of Nevin Plaza 1 in Richmond submitted an application for $725,000 of CDBG funds for the rehabilitation of Nevin Plaza 1.
Recommendations related to funds for affordable housing projects are typically made by the Affordable Housing Finance Committee (AHFC) and forwarded to the Board of Supervisors for approval. The AHFC usually meets once or twice each year, and as needed to review other off-cycle items, including revising any previous awards or recommending additional awards. A meeting was attempted to be held in early February 2024 to consider the additional award of CDBG funds to the two respective projects. Unfortunately, due to lack of quorum, the meeting was unable to be held.
As required by the County’s CDBG Citizen Participation Plan and as required by the U.S. Department of Housing and Urban Development (HUD), a Substantial Amendment to the County’s FY 2023/24 CDBG Action Plan is required for the Board’s approval to allocate the additional CDBG funds to these two projects.
Aspen Court Apartments
Aspen Court Apartments is an affordable development constructed in 1999. It provides 11 one-bedroom apartments for very low-income individuals disabled by HIV/AIDS. The additional $1,000,000 in CDBG funds will allow for much-needed rehabilitation of the project to address American with Disabilities Act (ADA) accessibility upgrades and deferred maintenance needs.
On May 16, 2023, the Board approved legal documents to loan $600,000 in HOPWA funds for the needed rehabilitation scope of work at Aspen Court Apartments project. Since execution of the HOPWA loan documents, the project has experienced a $1,000,000 financing gap due to an increased scope of work from what was originally anticipated. The original Physical Needs Assessment, which the costs of the rehabilitation were based on, was found to understate the repair costs for the required plumbing work, costs of demolition and drywall repair.
The building was constructed over 20 years ago and has capital needs that cannot be addressed with available resources. The project was originally financed as a small HUD-811 project that currently serves as a 100% HOPWA special needs population. HUD-811 sites were funded as an interest free capital advance with operating subsidies to nonprofit developers of affordable housing for persons with disabilities. Tenants’ rents are capped at 30% of their monthly income with the HUD Project Rental Assistance Contract (PRAC) to provide operating funds equal to the difference between annual operating costs and project revenues. The PRAC assistance is used to ensure project feasibility while enabling the project to achieve a deep level of affordability housing extremely-low-income households.
The current scope of the approved rehabilitation includes exterior accessibility upgrades to the parking lot, exterior lighting and security camera system improvements, exterior painting, roof replacement, water/plumbing pipeline replacement, water pump upgrades, central water heater upgrades, replacement of heaters in all units, and unit upgrades to kitchens, bathrooms, and flooring as needed.
The additional $1,000,000 in CDBG funds will be combined with the $600,000 HOPWA funds in a combined CDBG/HOPWA loan agreement (CDBG/HOPWA loan) through an amended and restated loan agreement. The combined CDBG/HOPWA loan is being made to finance the predevelopment and construction costs associated with the rehabilitation activities for Aspen Court and is intended to maintain the supply of affordable rental housing in the County. With this CDBG/HOPWA loan, the County will designate 11 units as CDBG- and HOPWA-assisted for an additional 55-year term. The terms of the HOPWA loan are unchanged; the HOPWA loan will bear no interest with payments being fully deferred during the term of the loan. The CDBG loan is proposed at 3% simple annual interest with annual payments due from surplus cash or residual receipts.
The recommended actions include authorization for the Director of the Department of Conservation and Development, or designee, to execute any and all documents and to take any and all actions necessary to implement the activities authorized under the loan documents, including execution of loan amendments or modifications for the purposes of agreeing to reasonable extensions of time deadlines.
Due to the high construction costs and limited revenue from the restricted rents, the total amount of the financing provided to the project will likely exceed the value of the completed project. Even though the proposed equity investment from low-income housing tax credits is substantial compared to the amount of long-term debt, the partnership agreement will have numerous safeguards of the investor's equity. These safeguards essentially subordinate the County’s debt to the investor’s equity. Therefore, the County CDBG funds may not be fully secured through the value of the property. However, the CDBG program funds are granted, not loaned, to the
County, so the County general fund will not have any exposure as a result of this loan. The County structures its CDBG investments as loans rather than grants in order to maintain involvement in the financial team in the event the project experiences any serious issues over the 55-year term.
National Environmental Policy Act (NEPA): CDBG and HOPWA projects are subject to NEPA and 24 CFR Part 58 review. The NEPA review for this project has been completed and the project is exempt.
Nevin Plaza I
Nevin Plaza I is an existing 140-unit seven-story low-income senior residential community located at 2400 Nevin Avenue, Richmond. The development includes 12 studio apartments, 120 one-bedroom units, and 8 two-bedroom units. The development was previously owned and operated by the Richmond Housing Authority since its completion in 1986. EAH Housing is partnering with the Richmond Housing Authority to renovate the development. The construction for renovations started on March 20, 2023, and is scheduled to be complete in February 2025. The $725,000 in CDBG funds will be used for construction-related costs for the rehabilitation of the units ($700,000) plus project delivery costs ($25,000). These additional funds are needed due to supply chain issues and unforeseen conditions at the property that have increased the overall development budget.
The County previously loaned CDBG funds for the rehabilitation of this development. The original CDBG loan was made on December 1, 2019, to repair and/or replace two elevators at the development. The loan was made to the Richmond Housing Authority (RHA), the then owner of the development. On February 28, 2023, the Board (i) approved an assignment of the original CDBG loan agreement to Nevin Plaza I, L.P. (EAH affiliated limited partnership), (ii) approved an amendment to the original CDBG loan agreement, (iii) approved the transfer of the development to Nevin Plaza I, L.P., and (iv) consented to a ground lease of the property by RHA to Nevin Plan I, L.P.
The additional CDBG funds will be provided as a loan and will be combined with the existing CDBG loan agreement through an amended and restated loan agreement. This additional loan is being made to finance the construction costs associated with the rehabilitation activities for the development and is intended to maintain the supply of affordable rental housing in the County. With this additional CDBG loan, the 140 units will be designated as affordable for an additional 55-year term. The CDBG loan will bear 3% interest or the applicable federal rate, compounded annually.
The recommended actions needed to implement the proposed rehabilitation include amending and restating the existing CDBG loan of $401,523 with accrued interest, to loan additional CDBG funds in the amount of $700,000. Together, the new CDBG loan amount will be approximately $1,101,523 plus accrued interest.
The recommended actions also include authorization for the Director of the Department of Conservation and Development, or designee, to execute any and all documents and to take any and all actions necessary to implement the activities authorized under the Loan Documents, including execution of loan amendments or modifications for the purposes of agreeing to reasonable extensions of time deadlines.
Due to the high construction costs and limited revenue from the restricted rents, the total amount of the financing provided to the project will likely exceed the value of the completed project. Even though the proposed equity investment from low-income housing tax credits is substantial compared to the amount of long-term debt, the partnership agreement will have numerous safeguards of the investor's equity. These safeguards essentially subordinate the County’s debt to the investor’s equity. Therefore, the County CDBG funds may not be fully secured through the value of the property. However, the CDBG program funds are granted, not loaned, to the
County, so the County general fund will not have any exposure as a result of this loan. The County structures its CDBG investments as loans rather than grants in order to maintain involvement in the financial team in the event the project experiences any serious issues over the 55-year term.
National Environmental Policy Act (NEPA): HOPWA projects are subject to NEPA and 24 CFR Part 58 review. The NEPA review for this project has been completed and the project is exempt.
CONSEQUENCE OF NEGATIVE ACTION:
Not approving the allocation of CDBG funds and not authorizing the execution of the respective legal documents would prevent the projects from proceeding on schedule and risk a reduction in future CDBG allocations.