To: Board of Supervisors
From: John Kopchik, Director, Conservation and Development
Report Title: Approval of $994,807 CDBG and $1,000,000 HOME Loan and Related Documents for Chesley Mutual Housing Renovation
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
APPROVE and AUTHORIZE the Conservation and Development Director, or designee, to execute legal documents to provide a Community Development Block Grant (CDBG) loan of $994,807 and a HOME Investment Partnerships Program (HOME) loan of $1,000,000 to Chesley Avenue, L.P., a nonprofit limited partnership, to rehabilitate the Chesley Mutual Housing affordable apartment project located at 802 Chesley Avenue in Richmond.
FISCAL IMPACT:
No General Fund impact. Community Development Block Grant (CDBG) funds and HOME Investment Partnerships Program (HOME) funds are provided to the County on a formula allocation basis through the U.S. Department of Housing and Urban Development (HUD). CDBG CFDA #14.218, HOME CFDA #14.239.
BACKGROUND:
On May 11, 2021, the Board of Supervisors approved an allocation of $994,807 in CDBG funds and $1,000,000 in HOME funds to Chesley Avenue, L.P., a limited partnership with Community Housing Development Corporation of North Richmond acting as the managing general partner. The funds will be provided as a loan for the rehabilitation of Chesley Mutual Housing, a 19-year-old affordable housing development located at 802 Chesley Avenue in Richmond. The scope of work will include interior and exterior improvements, including but not limited to new roofing shingles and flashing, siding, and wall repair; replacement of lighting and installation of new play area surface and equipment; plumbing upgrades including new water heaters, replacement of bathroom hardware (shower heads and valves) and stall repair; Heating/Ventilation/Air Conditioning (HVAC) equipment repairs/improvements; and upgrading fire alarm and carbon monoxide detection system.
The County will provide the funds in the form of a 55-year loan. The loan will have a three percent simple annual interest rate over the 55-year term, and there may be annual loan payments if the project has a surplus cash flow. Otherwise, the loan is deferred for the 55-year term. Coterminous with the loan term, the County will enter into a Regulatory Agreement with Chesley Avenue Limited Partnership to restrict 29 of the units at the following levels of affordability:
• 2 units at 30% Area Median Income (AMI)
• 7 units at 40% AMI
• 20 units at 50% AMI
The CDBG/HOME Loan Agreement, the Promissory Note, Deed of Trust, Intercreditor Agreement, Regulatory Agreement, and Declaration of Restrictive Covenants are attached in their substantially final form and will be executed in a form approved by County Counsel. The County’s Loan will be subordinate to the existing debt on the project, and the County may be requested to sign estoppel agreements to that effect. This action of the Board includes authorization of the DCD Director, or designee, to execute estoppel and subordination agreements consistent with the subordination terms contained in the Development Loan Agreement.
Additional non-County financing for the rehabilitation includes a loan from Housing Trust Silicon Valley and the project’s reserves.
The recommended action includes authorization for the Director of the Department of Conservation and Development, or designee, to execute all necessary legal 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 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 for the investor’s equity. These safeguards essentially subordinate the County’s debt to the investor’s equity. Therefore, the County CDBG and HOME funds may not be fully secured through the value of the property. However, the CDBG and HOME program funds are granted, not loaned, to the County, so the County general fund will not have any exposure due to this loan. The County structures its CDBG and HOME 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 HOME projects are subject to NEPA and 24 CFR Part 58 review. The NEPA review for this project has been completed.
CONSEQUENCE OF NEGATIVE ACTION:
Without the approval and execution of the legal documents, the rehabilitation of Chesley Mutual Housing will not be completed, and the property will continue to suffer from deferred maintenance.