To: Board of Supervisors
From: John Kopchik, Director, Conservation and Development
Report Title: Orbisonia Heights Project: Phase 1 (Affordable Housing and Library) (Bay Point)
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
In connection with the first phase of the Orbisonia Heights Transit Oriented Development Project (Development) proposed by Pacific West Communities, Inc. (Master Developer), on property located near West Leland Road, Bailey Road, Maylard Street, and South Broadway Avenue in unincorporated Bay Point (the Property), Department of Conservation and Development staff recommend that the Board of Supervisors take all of the following actions, with all agreements and legal instruments referenced below being subject to approval by the County Administrator, or designee, and approval as to form by the County Counsel, or designee:
1. APPROVE and AUTHORIZE the Director of Conservation and Development, or designee (DCD Director), to execute the following on behalf of the County:
a. An Amended and Restated Disposition, Development and Loan Agreement (Amended and Restated DDLA) with Bay Point Pacific Associates, L.P. (Phase 1 Developer) that (i) increases the value of the County’s seller carryback loan for Phase 1 of the Development (Phase 1), from $1,796,875, to a new amount of $2,024,479, due to a 19-unit increase in the number of Phase 1 residential units, and (ii) makes changes to the financial structure of Phase 1 that require the Phase 1 Developer to convey a portion of the Property to a third-party investor that will then lease it back to the Phase 1 Developer for a term of 99 years.
b. A Development Loan Agreement with the Phase 1 Developer to loan the Phase 1 Developer the principal amount of $5,318,337 (funded by $2,496,750 Measure X funds, $1,767,453 Permanent Local Housing Allocation funds, and $1,054,134 In Lieu funds) for the construction of Phase 1.
2. AUTHORIZE the Chair, Board of Supervisors, to execute on behalf of the County grant deeds conveying an approximately 2.3-acre portion of the Property (Parcel A) to the Phase 1 Developer for construction of Phase 1, and an approximately 1.0-acre portion of the Property (Parcel D) to the Master Developer for park purposes.
3. APPROVE and AUTHORIZE the DCD Director and the Director of Public Works, or designee (PW Director), as applicable, to execute, on behalf of the County, all legal documents and instruments consistent with the agreements in Recommendations 1 and 2 above related to the Development, including but not limited to the following:
a. Documents related to and required as a part of Recommendations 1 and 2, above, which will include but may not be limited to a memorandum of DDLA, a regulatory agreement, a leasehold deed of trust, an assignment agreement, and a density bonus agreement.
b. Documents connected with the Phase 1 Developer’s construction of a portion of the library on a separate legal parcel within the Development (the Library Parcel), including but not limited to, a temporary license and construction agreement, declaration of covenants, conditions and restrictions providing for reciprocal easements between the Development’s housing parcel(s) and the Library Parcel, a reciprocal maintenance and use agreement, and a joint use and maintenance agreement.
c. Covenants to be recorded against the Property to satisfy conditions of approval applicable to the Development, including but not limited to, a declaration of covenant for public parking and parking revenue sharing.
FISCAL IMPACT:
The Property is a housing asset under Health and Safety Code section 34176 that was acquired using the former Contra Costa County Redevelopment Agency’s Low- and Moderate-Income Housing Fund (LMIHF), capital tax, increment and capital tax allocation bonds. The value of the County’s financial contribution to the first phase of development is approximately $7.34 million. The County’s financial contribution consists of (i) the seller carryback loan in the amount of $2,024,479 under the DDLA, and (ii) $2,496,750 of Measure X funds, $1,767,453 of Permanent Local Housing Allocation (PLHA) funds, and $1,054,134 of In Lieu funds contributed under the Development Loan Agreement, as described in the “Background” section.
BACKGROUND:
For all of the reasons described below, Department of Conservation and Development staff recommend that the Board of Supervisors take all of the actions listed in the Recommendations of this Staff Report.
A. The Orbisonia Heights Development and Planning Approvals
On May 24, 2022, the Board of Supervisors adopted Resolution No. 2022/192, approving the Master Development Agreement (MDA) and a Disposition, Development and Loan Agreement (DDLA) between the County and Pacific West Communities, Inc. (the Master Developer), for the development of the Orbisonia Heights Transit Oriented Development Project (Development) on County-owned property located near West Leland Avenue and Bailey Road in Bay Point (the Master Development Property). The Development is a mixed-income, mixed-use project. The Development will be constructed in three phases and, when complete, it will consist of 384 multi-family residential rental units, an approximately 20,900 square foot County-owned library, and approximately 10,900 square feet of commercial space. Under the DDLA, the first phase of the Development (Phase 1) includes the sale of approximately 3.3 acres of property identified as Parcel A and Parcel D, for the development of 150 residential units and the library. On May 24, 2022, the Board also determined that the Development met all criteria to be exempt from the California Environmental Quality Act (CEQA) under Public Resources Code section 21155.4, and directed staff to file a CEQA notice of exemption.
On December 14, 2022, the County Planning Commission approved the Land Use Permit and Development Plan Combination Permit (CDLP21-0215), and Tentative Map (CDMS21-00004) for the Development described above. A California Density Bonus Law waiver was included to allow a 14-foot setback on West Leland Road (where 25 feet is the minimum), 21% landscape coverage (where 25% is the minimum), and a reduced parking ratio of 1.15 parking spaces per unit (where a ratio of 1.3 is the minimum). As a condition of the County granting the density bonus waiver, the developer is required to ensure that at least 20% of the units in the development, which means 34 units in Phase 1, are rented to and occupied by Lower Income Households (i.e., at or below 80% of AMI). The term of the density bonus agreement is 55 years, which begins after all the Lower Income Units are occupied by Lower Income Households in the first phase of development.
B. Development - Phase 1
The County and Bay Point Pacific Associates, L.P (Phase 1 Developer) will enter into an Amended and Restated Disposition, Development and Loan Agreement (Amended and Restated DDLA) as part of the upcoming conveyance of Parcels A and D for use in the first phase of the Development (Phase 1). The Amended and Restated DDLA reflects (i) an increase in the seller carryback amount loan from the County for Phase 1, from $1,796,875, to a new loan amount of $2,024,479, to reflect an increase of 19 residential units, for a total of 169 units (167 affordable units, 2 Managers units) being constructed as part of Phase 1, and (ii) a change in the financial structure of Phase 1 that requires the Phase 1 Developer to convey Parcel A to a third-party investor who will then lease it back to the Phase 1 Developer for a term of 99 years.
Under the Amended and Restated DDLA, the first close of escrow is expected to occur in early June 2026, at which time Parcel A will be conveyed to the Phase 1 Developer, and Parcel D will be conveyed to the Master Developer. A second close of escrow is expected to occur in mid-June 2026, at which time Parcel A will be conveyed by the Phase 1 Developer to a third-party investor. The Phase 1 Developer will simultaneously lease Parcel A back for a term of 99 years. The County loans being made under the Development Loan Agreement will be funded at the second close of escrow. The Library Parcel is not part of these conveyances.
Construction of Phase 1 will result in 169 new residential units, thereby contributing to the community’s supply of housing that is affordable to very low- to moderate-income households, as well as approximately 20,900 square-feet of public library space. The project allows the County, as Housing Successor, to fulfill its legal obligation to increase affordable housing production, dispose of housing assets and use funds from the LMIHF.
The following is a summary of the affordability level for the 169 Phase 1 units:
|
Number of Units |
Affordability Level |
% of Area Median Income |
|
36 |
Extremely Low |
30% |
|
8 |
Very Low |
50% |
|
8 |
Low |
60% |
|
115 |
Low |
80% |
|
2 |
Managers Units |
|
|
|
|
|
|
|
|
|
C. County’s Financial Contribution
Subject to adjustment as discussed below, the County’s total Phase 1 financial contribution is approximately $7.34 million and consists of (i) a seller (i.e., County) carryback loan in the amount of $2,024,479 under the DDLA, and (ii) $2,496,750 of Measure X funds, $1,767,453 of Permanent Local Housing Allocation (“PLHA”) funds, and $1,054,134 of In Lieu funds being loaned to the Phase 1 Developer under the Development Loan Agreement, which come from specific sources and are not part of the general fund. In-Lieu fees are fees developers pay instead of developing affordable housing as part of their projects. Measure X funds are part of a countywide, 20-year ½ cent sales tax increase approved by Contra Costa County voters on November 3, 2020. PLHA funding comes from the California Department of Housing and Community Development and has already been awarded to the County to cover the cost of the PLHA recommendation and up to 5% of the total PLHA grant for the County’s administrative costs. The seller carryback loan amount was determined by allocating to Phase 1 a proportionate amount of the $4,600,000 appraised value for the entire property used in the Master Development. The allocation is based on the number of housing units being constructed in the first phase of development. A deed of trust will secure the “seller carryback” loan (see Section D, below). The Development Loan Agreement will be for a term of 55 years, and the loan will be made at an interest rate of three percent (3%) simple interest.
Related instruments between the County and the Phase 1 Developer will include a promissory note, a leasehold deed of trust, and a regulatory agreement to secure the loan. The loan is a “residual receipts” loan, which means it will be repaid only when the Development has surplus cashflow. Affordability and use restrictions are incorporated into the Development Loan Agreement.
Under a separate action item on today's agenda, the Board is being asked to authorize the allocation of In Lieu funds to various projects, including the allocation of an additional $1,000,000 to this project (In Lieu Allocation). Approval of the loan of $1,054,134 of In Lieu funds discussed above is not conditioned upon the Board's approval of the In Lieu Allocation sought by the separate action on today’s agenda. If the In Lieu Allocation is approved, the County’s loan of In Lieu funds to Phase 1 will increase to $2,054,134, and the County’s total financial contribution to Phase 1 will be $8.34 million.
D. Loan Documents and Financing Structure
A certificate of compliance will be recorded to create the separate Library Parcel within the Development. The Phase 1 Developer will acquire Parcel A, excluding the library parcel, using a “seller carryback” loan, which is a loan from the County. The Phase 1 Developer will then convey Parcel A to a third-party investor through a sale-leaseback structure. The third-party investor will lease Parcel A back to the Phase 1 Developer for a term of 99 years and will provide additional project financing in the form of an improvement allowance. The County’s deed of trust securing its “seller carryback” loan will be recorded against the leasehold estate, rather than the fee title.
Due to the high development costs relative to anticipated project revenues from the income-restricted rents, and due to senior lender and investor security requirements, the County debt may not be fully secured by the value of the property and improvements, and the total amount of the financing provided for 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 will have the effect of making the County’s secured debt having a priority lower than the investor’s equity, meaning that in the event of default or foreclosure the investor would be made whole before the County would receive anything.
This financing structure serves an important purpose and is common for low-income housing projects, even though the County generally would not entertain this kind financing structure for other kinds of projects. The County funding comes from special funding sources used for affordable housing, and no general fund monies are involved. The County uses loans, rather than grants, for affordable housing so that the County can remain involved should the project experience any serious issues over the 55-year loan term.
E. CEQA Exemption Determination
The Development is statutorily exempt from the California Environmental Quality Act (“CEQA”) under Public Resources Code section 21155.4(a), for the following reasons:
• The Development is a mixed-use development consisting of residential, commercial, and public library space.
• The Development is within a transit priority area, and the Pittsburg/Bay Point BART station is within one-half mile of the Development’s location.
• The Development is being undertaken to implement and is consistent with the Pittsburg/Bay Point BART Station Area Specific Plan, which was adopted by the Board of Supervisors on June 18, 2002. A CEQA environmental impact report for that specific plan was certified by the Board of Supervisors on that same date (State Clearinghouse No. 98022071).
• The Development is consistent with the general use designation, density, building intensity, and applicable policies specified for the project area in Plan Bay Area 2050, which has been determined by the California Air Resources Board to be a strategy that, if implemented, would achieve the greenhouse gas emissions reduction targets.
There is no basis for any further environmental review under Public Resources Code section 21166.
CONSEQUENCE OF NEGATIVE ACTION:
Failure to approve the recommended actions will result in the project not closing in time to achieve deadlines imposed by the State. The Orbisonia Village project must close on project financing and begin construction by June 29, 2026, or the project will be required to forgo the 4% tax credits and tax-exempt bonds it has been awarded. The project’s financing structure depends on the availability of the 4% tax credits.
Cc: Warren Lai, Director of Public Works