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Council Provided Information - 6/11/2024CITY COUNCIL OF SALT LAKE CITY 451 SOUTH STATE STREET, ROOM 304 P.O. BOX 145476, SALT LAKE CITY, UTAH 84114-5476 SLCCOUNCIL.COM TEL 801-535-7600 FAX 801-535-7651 BOARD STAFF REPORT THE REDEVELOPMENT AGENCY of SALT LAKE CITY TO:RDA Board Members FROM:Allison Rowland Senior Budget & Policy Analyst DATE:June 11, 2024 RE:RESOLUTION: AMENDMENT TO HOUSING DEVELOPMENT LOAN FUNDING ALLOCATIONS FOR THE CATHERINE ISSUE-AT-A-GLANCE The Board will review and consider approving an amendment to an affordable housing project that received $1,134,323 in the most recent Notice of Funding Availability (NOFA) competition for Fiscal Year 2024 (FY24) funds allocated to the RDA’s Housing Development Loan Program (HDLP). The developer of "The Catherine” Phases 1 and 2, at approximately 1881 W. North Temple, was recently informed that the project did not receive the 4% Federal Low-Income Housing Tax Credit (LIHTC) credits needed to make the project viable. The developer, 22 Communities is an experienced and well-regarded developer of affordable housing that has been working with RDA staff to find a workable alternative for this project. The project is a 372-unit development that originally was awarded a low-interest loan for $1 million of “dormant” Federal housing program income, as well as $134,323 from the RDA budget. As proposed, it would provide studio to three-bedroom rental apartments at 41-60% Average Median Income (AMI). The proposed amendment would shift the loan type to an acquisition loan to ensure the developer is able to buy the property; this would be converted later to a construction-to-permanent loan. The amendment would require a conditional waiver of the HDLP deed restrictions, and because RDA policy does not address this situation, the staff needs Board approval to proceed. The condition of the waiver is that if the project is unable to secure tax credits and financing in the next two years, and close on a construction-to-permanent loan, the developer would be required to pay the RDA an above-market interest rate for the loan. In that case, the conditional waiver also would allow the 30-year affordable deed restriction to be removed. The RDA Finance Committee reviewed and unanimously recommended this request on May 29, 2024, with a clarification that Phase 1 HUD HOME requirements and regulations be met prior to closing. Item Schedule: Briefing: June 11, 2024 Set Date: N/A Public Hearing: N/A Potential Action: June 11, 2024 Page | 2 Goal of the briefing: Discuss and consider adopting the resolution that would amend the Housing Development Loan Program (HDLP) loan to The Catherine Phase 1 and Phase 2 projects. ADDITIONAL INFORMATION A. Background. The Catherine development project (Phases 1 and 2) was included on the list of projects approved by the Board last March for $15.4 million in affordable housing loans offered through the FY24 Notice of Funding Availability (NOFA), issued in 2023. The purpose of these low-interest loans is to incentivize the inclusion of affordable housing in new construction, as well as preservation and rehabilitation projects. (For additional information, see Attachment C1, or see the March staff report.) City loan funding for the development project was combined from two sources—“dormant” Federal housing program income and the RDA budget—for a total of $1,134,323. At completion, the project would provide 372 rental apartments, ranging in size from studio to three-bedroom units, and priced at 41-60% Average Median Income (AMI). The terms originally approved by the Board for each phase of the development are identical, as listed below. Interest Rate Term Amortization Repayment Type Phase 1 2.0%16 year 40 year Cash Flow Phase 2 2.0%16 year 40 year Cash Flow Since the project did not receive LIHTC credits, the developer will not be able to buy the property before the end of this year. Instead, the developer has executed a new purchase and sale agreement for the property with a lower price and a much quicker closing date than originally anticipated. If the amendment to the HDLP loans is approved by the Board, it would allow the funds to be used for acquisition, and the loan could later be converted to a construction-to-permanent one. B. Proposed New Terms. The developer has requested a loan modification with a conditional waiver of the deed restriction. The proposal would change the original loan type to an acquisition loan that later could be converted to a construction-to-permanent loan. The conditional waiver of the deed restriction would allow the standard HDLP 30-year affordable deed restriction to be removed, provided the developer agrees to repay the HDLP loan at an above-market interest rate. This rate would be set to the two-year US Treasury Yield at the time of closing plus 800 basis points (8 percentage points) calculated from the time of interest accrual. The condition is meant to avoid setting a precedent that could encourage other developers to attempt to use the HDLP as a low-cost source for acquisition loans. The deed restriction would be waived, and the loan’s interest rate would be raised, only if the project is unable to secure tax credits and financing within the next two years, and cannot meet the conditions required to close on a construction-to-permanent loan. This type of agreement falls within existing RDA policies. Construction Phase Interest Rate Term Amortization Repayment Type Phase 1 Page | 3 - Acquisition 1.0%2 years Balloon or Conversion - Construction- to-Permanent 2.0%16 years 40 years Cash Flow Phase 2 - Acquisition 1.0%2 years Balloon or Conversion - Construction- to-Permanent 2.0%16 years 40 years Cash Flow C. Future Steps. The developer intends to reapply for tax credits in the coming months, and these may be awarded as early as July. The 4% LITHC has become more competitive in recent years as construction prices have risen and more projects seek this source of funding. Each year, a limited amount of funding is allocated to projects on a first-come, first-served basis. By the time the Catherine Phase 1 and 2 was considered, most funding had already been allocated. D. Site Conditions. The existing land use for this property is Industrial. The developer has completed a Phase 1 environmental review, which did not detect any hazardous materials associated with the property. This environmental review is also required as a condition of the HOME funds that were allocated in March. POLICY QUESTIONS 1. Does the Board agree that the terms of the proposed loan and conditional waiver are sufficiently rooted in RDA policy, and strict in their terms, that they are unlikely to attract less scrupulous developers who wish to cite precedent to obtain similar terms? ATTACHMENTS Attachment C1. Summary of RDA Finance Committee Recommended FY24 HDLP Funding. REDEVELOPMENT AGENCY OF SLC THE CATHERINE PHASE 1 AND 2 HOUSING DEVELOPMENT LOAN PROGRAM LOAN TERM AMENDMENT RDA BOARD OF DIRECTORS MEETING – JUNE 11, 2024 BACKGROUND •The Catherine Phase 1 and Phase 2 o Developer: 22 Communities o Funded through competitive Housing Development Loan Program (HDLP) NOFA process o RDA Board allocated $15M to 13 of the 15 projects o Both projects ranked 10 of 15 o Allocations ▪Phase 1: $1M in HOME Program Income Funds ▪Phase 2: $134,323 in RDA Funds PROJECT SUMMARY •2 phase project: o Phase 1: 228 Units - 100% affordable to households between 41%-60% AMI. o Phase 2: 144 Units – 100% affordable to households between 41%-60% AMI. •Mix of studio, one-, two-, and three-bedroom units. •Due to the lack of bond cap at the last PAB, Developer is seeking to restructure the loan into an acquisition loan. PROPOSED AMENDMENTS 1.Amend the loan type for each phase to an acquisition loan that may convert to a construction to permanent loan within 2 years 2.Allow for conditional waiver of affordable deed restriction that would allow removal of 30 year deed restriction by requiring Developer to pay an above market interest rate if project cannot secure tax credits, financing, and meet other conditions required to close on construction to permanent loan within 2 years. APPROVED TERMS VS PROPOSED AMENDMENTS Amended Request:$1,134,323 between HOME and RDA Funds ORIGINAL APPROVAL PROPOSED AMENDMENT Amount:Phase 1: $1,000,000 HUD HOME Funds Phase 2: $134,323 RDA Funds Phase 1: $1,000,000 HUD HOME Funds Phase 2: $134,323 RDA Funds Loan Type Construction to Permanent Acquisition loan that may convert to Construction to Permanent loan Repayment Type Cash Flow Acquisition: Balloon payment or conversion to Construction to Permanent loan Construction to Permanent: Cash flow Interest Rate:2%*Acquisition: 1%*, may be subject to change. See “Other” section below. Construction to Permanent: 2%* Term/Am:16 yr/40 yr Acquisition: 2 years (24 months) Construction to Permanent: 16 yr/40 yr Other:Deed restriction of 30 years or same period as senior financing, whichever is greater Deed restriction of 30 years with conditional waiver to requirement: If unable to secure tax credits and financing within 24 months and property cannot fulfill affordable housing obligation, developer could request removal of deed restriction. Removal of deed restriction will require the loan to be paid in full with an interest rate of the 2 Year US Treasury Yield at time of closing + 8% calculated from the time of interest accrual. *Interest rate after reductions from meeting project priorities. CONSIDERATIONS •The HDLP policy allows for acquisition loans. o The LTV is 78%, under the 90% threshold as outlined in the policy. o The developer has maximized other lending sources and will obtain a loan from a senior lender. •The amendment will help with project’s ability to acquire the property. •The RDA has taken steps to ensure the Developer will not be incentivized to flip the property to market due to the low interest rate by requiring a significantly higher interest rate should the deed restriction be waived on the property. •If approved, Developer will purchase the property this month. RDA FINANCE COMMITTEE RECOMMENDATION •Approve loan amendments with the requirement that Phase 1 HUD HOME requirements and regulations are met prior to closing.