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HomeMy WebLinkAbout7.2 FairwayRan AffordHous CITY CLERK File #0430-80 AGENDA STATEMENT CITY COUNCIL MEETING DATE: May 20, 2003 SUBJECT: PA 03-010, Fairway Ranch Affordable Housing Project Report Prepared by Eddie Peabody, Community Development Director and Marnie R. Waffle, Assistant Planner ATTACHMENTS: 1. April 1, 2003 City Council Meeting Minutes 2. Analysis of Affordable Housing Projects 10 Years or Older, dated May 2, 2003 (Klein Financial Corporation) 3. Fairway Ranch Property Management, dated May 8, 2003 (Klein Financial Corporation) RECOMMENDATION:N//' 1. Receive Staff Report 2. Hear presentation by Klein Financial Corporation and Legacy Partners 3. Provide comment and/or direction to Fairway Ranch proponents on this subject BACKGROUND: At the April 1, 2003 City Council meeting, Staff presented a report to the Council on the Fairway Ranch Housing Project that included issues to be discussed at future City Council meetings. One issue was providing the Council with additional information on the management and operation of affordable housing projects that are ten years or older and, information on the entity that would be utilized to manage the Fairway Ranch Housing Project. DESCRIPTION: Management and Operation of Affordable Housing Projects 10 Years or Older Klein Financial Corporation surveyed affordable housing projects in California that ranged from 5 to 11 years old and comparable in size and financial structure to the Fairway Ranch Housing Project. The survey included family and senior apartment communities with an affordable component ranging from 20% to 100% of the project. Nine affordable family apartment communities, and three affordable senior apartment communities were surveyed by Klein Financial Corporation. Interviews were conducted with the property managers and revealed that the projects are being maintained and managed successfully. Turnover rates were reported as typical, however no mention was made as to vacancy rates. (See Attachment 2) COPIES TO: 1'.1 Fairway Ranch Management and Operation Proposal As noted in Attachment 3, Legacy Partners has been chosen by Klein Financial to provide property management services for the senior rental community and the family rental community within the Fairway Ranch Housing Project. Legacy has experience in the development and management of apartment communities and has specific expertise in the management of mixed income, senior and family communities. In addition, Legacy Partners has experience in operating shuttle services for the residents of one of the communities it manages. Representatives of Klein Financial Corporation and Legacy Partners will present a brief overview to the Council of their proposal to manage and operate the Fairway Ranch Housing Project. City ~tpproval of Property Management and Operation Proposal A proposal is now being developed that would require the owner, as a condition of release of the City's loan funds for either of the two rental projects (senior or family) to submit to the City for review and approval a plan for the marketing and management of the property. This action would be included in the Affordable Housing Regulatory Agreements for both the senior and family projects and would include: · Management responsibilities for the properties; · City review and approval of the management entity chosen by the owner and the right to require a change in the management agent for reasonable cause; · City approval of a marketing and management plan covering marketing of residential units, management and maintenance of the properties, and appropriate financial information and documentation; and · City review and approval of the actual Management Agreement at least 90 days before the issuance of the first building permit. By these actions, the City will be able to ensure that appropriate safeguards would be established to guarantee the continuing operation of the management entity for each of the rental projects. RECOMMENDATION Staff recommends that Council receive the Staff Report, hear the presentation by Klein Financial Corporation and Legacy Partners, and provide comment and/or direction to the Fairway Ranch proponents on this subject. FAIRWAY RANCH AFFORDABLE HOUSING PROJECT 8:01 p.m. 7.2 (430-80) Planning Manager Jeri Ram preSented the Staff Report, advising that this item is being brought back before the City Council for review of the proposed financial package and issues relating to the proposed Fairway Ranch Affordable Housing Project. At the February 18th and March 4t~ City Council meetings, the City Council conceptually considered a proposal by the Lin Family to construct a 928-unit project in Dublin Ranch Area B with 629 affordable units designed to satisfy the inclusionary zoning obligation for the remainder of DUblin Ranch. The Dublin Ranch representative indicated that in order for this project to be financially feasible, the City would need to contribute the equivalent of $6,786 million to the projeci and complete the project entitlement process prior to the deadline of July 16, 2003 for applying for a State Housing Bond Allocation. In addition, the Applicant requested that the City waive any further inclusionary zoning and future possible commercial linkage requirements for the balance of Dublin Ranch and Wallis Ranch properties. At the February 18th meeting, the City council directed Staff to prepare a report that would evaluate the financing request, the impact of paying prevailing wage on the project, the issue of affordable housing credits, the potential for the development of affordable housing outside of the Dublin Ranch holdings, the potential for for-sale units, the feasibility of processing the project within the timeline requested by Dublin Ranch and the impact of the timeline of the proposed project on other City projects. At the March 4th City Council meeting, Staff presented a report that included the Entitlement Process and approximate timeframes and the current Community Development Department project list as well as impacts to the workload on other City Departments. The City Council directed Staff to continue working on the project and deferred work on some other high priority projects until August, 2003. Since the March 4m meeting, Staff has met with the Applicant to clarify the information needed to' complete the City's preliminary evaluation of the proposal. Staff has secured the services of a specialist in Housing Finance, CSG Advisors. VOLUME 22 REGULAR Apri~ i, 2e@3 ?AGE 208 ATTACHMENT t ............................. ....... "The Staff Report discussed a review of applicable requirements, including: 1) Zoning and General and Specific Plan Designations; 2) Inclusionary Zoning Regulations; and $) Density Bonus Regulations and Statute. The Staff Report discussed benefits for the Applicant, including: Bridge Loan; Density BOnus; Reduced Cost to Dublin Ranch of Providing Inclusionary Units; Marketability of Dublin Ranch; and Requested Exemption From Commercial Linkage Fee. Benefits for the City include: Additional Affordable Units; Deeper Affordability on Low Income UnitS; Earlier Affordable Development; and Built Affordable Units. Staff has been meeting with the Applicant on a regular basis to discuss SDR aPplication issues. Staff has not received a complete pre-application packet that was required to be submitted by March 5, 2003. In addition, Staff is concerned about the length of time that it is taking to work out issues related to the site. Issues that remain unresolved are fire access and on-site parking. Prior to May 19, 2003, Staff will be preparing an analysis for the City Council on the following issues: Parking Standards for the project Any changes to the financial plan · Additional information on project experience by the Applicant of managing and operating'additional projects that are 10 years or older. Staff requested that the Council provide direction on whether Staff should continue processing the Application; If yes, provide direction on whether to proceed to complete the financial terms of this proposal as recommended by Staff which consist of: A. Financial assistance (loan) not to exceed $4.5 m/Ilion for Phases I & II in equal increments. B. A 3% compounded interest rate. C. No waiver of future commercial linkage fees for Dublin Ranch commercial areas. D. Other issues that have been agreed to by the Staff and Applicants. E. Review and resolve whether to provide a loan for the project which will assist the applicant to construct the project without paying prevailing wage rates. F. Review and comment on applicant's proposal for.construction, management and long-term operation of the proposed project. VOLUME 22 REGULAR A.pri~ ~, 2003 PAGE 2'09 G. Provide direction to Staff on Inclusi°nary Zoning/Density Bonus unit counting. Cm. Sbranti referred to Recommendation #G, and asked for clarification. City Attorney Silver provided a lengthy legal discussion regarding density bonus. Information received as of today was distributed. Cm. Sbranti asked about the financial difference between a simple interest 3% vs. compounded. Mayor Lockhart responded there would be an approximate $400,000 difference. Cm. Zika asked for a quantification of the marketability of Dublin Ranch. Gene Slater, Financial Consultant, stated that the value of meeting the Inclusionary Ordinance would be that the Applicant is exempted from the requirement on the rest of the land. The value of that is the cost per unit. The total value over time is approximately $$ 5 million, or $I 6 million present value. Martin Inderbitzen, along with Robert Kline, Jim Tong and several other consultants were here to address any questions. He opposed the City Attorney's interpretation of the State's density bonus regulations. The City's inclusionary zoning ordinance sets a 12.5% requirement/target. They seized upon this opportunity to provide a significant amount of affordable housing and this project will produce results far beyond what was even thought of when the Ordinance was adopted. They know there are funds out there today and they want to go out and get them for our City to help meet its goals. The commitment of the 25 acres to this project is a tremendous asset. It gets harder to provide affordable housing in communities. They will build a substantial number of units over which would be built and provide increased opportunities for people. What they ask for in City assistance is very modest. An overhead projector presentation outlined their requests and the outcome of those requests: expedited processing yes; waiver of processing fees - no; deferral of impact fees - no; credit for excess traits - no; 25% density bonus - disputed; full compliance with inclusionary zoning ordinance for Dublin Ranch - disputed; grant of $6~786,000 from housing fund - no (instead $4.5 loan with interest repaid within ~ years); and reduced parking requirements'- disputed. In an adjacent city there is a $63 unit project which provides 86 below market units and they are waiving lots of fees for a net benefit of $1.1 million or $1 $,000 per unit. ce ~,~Ne I ~ MINUTES CITYr -~ ~,~ VOLUME 22 PAGE 210 Mr. Inderbitzen stated ·they seek direction on the mix of units. Mayor Lockhart referred to the matrLx of for-sale units and confirmed that there are 2¢ moderate, I 0 low, 1 ¢ very low income units, and confirmed that there were a total of 52 affordable for sale. Mr. Inderbitzen stated that it's a market rate project with 52 for-sale units are all moderate rate for 55 years, per Council direction. Cm. Zika stated he assumed the :3 bedroom units will have 2 baths. Mr. Inderbitzen responded yes. Cm. Zika asked how many Senior affordable units included 2 master baths. Robert Kline stated 76 units will be 2~bedroom/2~bath (one master bath and one guest bath). Only the market rate units have two large bathrooms. Mr. Inderbitzen reiterated that they are asking the following: I) resolution on the mix of the Units and the layout of the project; 2) resolution of the loan term and the amount; and :3) resolution on the issue of full compliance with the ordinance and a waiver of the commercial linkage fee, which is not currently in place. To get a fee in place, the City would have to conduct a nexus study to rationalize that there is a rational relationship between the commercial development that would'occur on the Dublin Ranch property and the impact on housing that would be generated as a result of that commercial development. They would also like to have a resolution to the parking issue. They have a desire to make sure the parking program for each one of their projects works, and are motivated to make sure it isn't excessive. Parking is provided at a rate based on an established ordinance. When parking spaces that go unused, it drives up the cost of affordability. The requirement of 1.9 spaces per unit for seniors is 1.:3:3 to 1, and the Inclusionary Ordinance provides for a reduction of parking where appropriate, The Waterford project mixed use is at less than 1.9 to 1. The City's own senior project is at 1.5 to 1. Their survey tells them it should be about 1.5 to 1 average. Their commitment would be 1.8 on condos, 1.5 on family apartment and 1 to 1 on the senior project. Ir'is an expensive challenge to get the parking. The simple versus compound interest would become a factor. Generally~ parking is about $12,000 per space. On the issue of long term management, Legacy Properties or its equivalent will be the property manager for both projects. Legacy will be retained on a consulting basis during the predevelopment phase of the projects to advise the Project Team on marking and operational issues that influence project design. Upon completion of the projects, Legacy wilt rent the units, C_~TY COUNCIL L~:EN'UTES VOLUME 22 REGULAR April .~, 2003 PAGE 211 manage the Units and have primary responsibility for compliance with the City's bond and tax credit affordability requirements. They would like to lea~e this eVening with clear direction from the Council. .~ Cm. Zika questioned the issue of seniors being 55 and why not 1327 Mr. Inderbitzen stated this is a standard they can identify through a lot of state and federal financing options. Robert Kline stated .132 is a federal standard unit. They are pushed to show the greatest need possible and you expand the market even further at 5 5 instead of t52. Cm. Zika stated his concern is that at 55, most people are still working, and they usually have at least 2 cars. These units are over half a mile from any shopping, so the seniors will have to have some kind of transportation. Mr. Inderbitzen stated it is exactly 13/10th of a mile from the Waterford project and there will be transportation available. There has been little guidance from the City regarding definition of senior. Cm. Sbranti asked what standard they used in their study? Mr. Inderbitzen stated originally they used t32 and came up with .8 parking units for seniors of 5 5. Mayor Lock_hart pointed out there are a lot of singles in that age group. Cm. Z/ka stated Waterford has the option of overflow parking into the commercial area. Mr. Ambrose reminded the Council that the SDR is not before the City Council this evening. They have not presented a concrete proposal. Cm. Zika aSked about subordination of the loan and encumbering another piece of property? Ms. Silver stated the City would get a deed of trust on some other land in Dublin Ranch with $ times the value of the loan. Subordination is a different issue. CITY C©'UNC~L MINUTES V©LUM"E 22 REGULAR MEETING Apri~ I, 2003 PAGE 212 Mr. Inderbitzen explained that the loan would go into the financing paCkage, but the security would be a separate issue. The City warns to guarantee they will get its money back ha 6 years. Robert Kline advised that they researched other examples of subordination where cities did not subordinate its inclusionary requirements to the mortgage. They are trying to make sure they can comply to get triple AAA rated bonds. This is the lowest subsidy he has seen in his $$ years dealing with affordability housing. The efficiency of the financing is very important, and he stated they will provide a full report to Staff and the City Council. Curtis Susuld, Arbor Creek Circle, stated he has been a resident of Dublin since 1990 and is currently employed with the San Jose Housing Department. He is proud of what Dublin is trying to do with housing. They deal with many of the same issues in San Jose. Mark Schlitt, Creekside Court, stated he was here in February and also represents the Executive Board of the Tri~Valley Interfaith Forum. It is exciting to see the City Council taking such a proactive approach to affordable housing, and encouraged the Council not to underestimate the value of being able to provide low income units for these folks. This is the hardest kind of building that can be accomplished, but will make a huge difference to struggling people. Mary Beth Acuff, Dublin resident, questioned the ability to not pay prevailing wages. The project sounds very interesting and she likes the use of mixed neighborhoods. She felt a red flag on prevailing wages. Cm. Zika stated he had concerns about information that was to be submitted $ 0 days ago that has not yet been submitted. If we are this late early in the process, what's going to happen later? Mr. Inderbitzen responded they are working very hard to cooperate with Staff. Mike Porto is doing a remarkable job, working over the weekend. Reality is whether or not they have provided substantial enough information for Staff to move forward. They are more at risk than the City. By Council consensus, Staff was directed to continue to process the application. The Council determined that Recommendation A and B should be combined for discussion. C~T¥ COUNCIL rG[NUTE$ VOLUME 22 ~AGE 213 Cm. Oravetz stated he would support simple interest. Cm. Zika stated he felt compound interest would maintain the integrity of the fund. Cm. Sbranti asked what the City's precedent for loans has been. Ms. Abdala stated the senior housing is 3% simple interest, but for only $250,000. Mayor Lockhart stated the value.of the project, the location and the speed of development are important issues. She stated she was waiting for someone to convince her one way or the other. cm. McCormick stated leaned toward simple interest. Cm. Sbranti stated he could support simple interest. Mayor Lockhart stated she could live with this. By consensus, the Council agreed to simple interest. Mayor Lockhart referred to the commercial linkage fee, stating that getting affordable units was worth more than a fee and this balances the commercial impact to the housing. The ultimate goal is to mitigate the impact of commercial businesses in our community. They have made the case that they will provide enough housing for affordable workers they will bring to the area, so she supports no commercial linkage fee. Cm. Sbranti also supports a waiver of this fee. Mr. Ambrose stated that Staff will look at senior units, which typically don't impact jobs. Cm. Oravetz agreed with waiving the commercial linkage fee, as they are building 162 extra units. Cm. Zika cautioned that the City was setting a very dangerous precedent. If the City forgives this fee, and the-County will be in here next week wanting us to forgive its fee. By a consensus, the Council agreed to not apply the commercial linkage fee t° this project. YrOLD'ME 22 REGU L~A~i MEETING April ~.... 2@03 PAGE 214 Regarding the mix 'of units, by consensus the Council indicated it was satisfied with the mix. Regarding the issue of prevailing wage, Mr. Ambrose advised that prevailing wage does have a lot of impact on the ability .for the project to proceed. Cm. Sbranti stated he did a lot of research on this. Part of SB 975 was a compromise beg, veen labor and home builders'for a one-year period only. After January I, 2004, any affordable project will use prevailing wage. With expedited approval, the City can do part of the project avoiding prevailing wage. One or two phases will most likely use prevailing wage rates. By consensus, the Council agreed to provide a loan for the project which w/il assist the applicant to construct the project without paying prevailing wage rates. Mr. Ambrose asked the Council for determination as the issue of management and long term operation.. Cm. Zika stated he asked for some projects 10 years old that he could look at. He is not familiar with Legacy or Lincoln. Mr. Kline stated he would be happy to provide a list. Mayor Lockhart stated the people who put the money on the line want this to be successful as does the City. She would like a list of names and see properties that have been around for awhile. Cm. Sbranti stated they have a lot of incentive to make sure the project is done well, particularly since the project is right next door to condos. He agreed he. would like to see some examples. The consensus was the Applicant should provide more information. Mr. Ambrose asked the Council for direction regarding the issue of density bonus and inclusionary zoning, which would provide some important policy direction for Staff. He assumed that, with this project, the Council is comfortable with the package. However, in terms of future projects, should those units double count? Cm. Zika stated no, the goal is to get units. CiTY COUNCIL M[INUTES VOLUME 22 REGULAR ME ETtNG Apri~ ~, 20(}3 PAGE 215 Mayor Iockhart suggested doing it on a project-by-project basis? Mr. Ambrose stated yes, but a determination would provide the developers of future projects and Staff with direction. Cm. Sbranti stated he could not make a decision on this complicated issue tonight. Mr. Ambrose pointed out it is part of the Applicant's current proposal. If the City Council feels comfortable with the proposal as it is currently proposed, that the Council will not apply the density bonus ord/nance by counting the units separately, that would be fine. By Council consensus, it was determined that the issue of density bonus and inclusionary zoning, as presented in the current proposal, was acceptable. The issue of density bonus and inclusionary zoning for future projects would be brought back before Council. Ms. Ram advised that'Staff is working with the Developer on parking and they just received information today. Staff suggested bringing that information before Council after Staff had the opportunity make an analysis. Mr. Inderbitzen stated they need direction that tells them whether or not they will be able to take advantage of some parking reduction. It would be helpful ff they had some flexibility. Mr. Ambrose stated he felt that the City Council needed to have all the facts before providing direction. The Council agreed. Mr. Inderbitzen stated he would tike to take away some sense that the City CounCil will support flexibility on parking. They want to make sure the parking works. He was concerned that to make parking meet the ordinance, it may not make the project work. The more demanding the Council is on parking, the less affordable the project becomes. Cm. Sbranti stated the Council has made a lot of concessions and, hopefully, the Developer can work with Staff on this. CITY COUNCIL ?~tNUTE$ VOLU3SE 22 REGULAR ME.ET[NG . Apri~ t? 2003 PAGE 216 Cm. McCormick asked if they would be looking at the green building ordinance at. the next meeting. Mr. Ambrose replied that Staff has not had a chance to work on the green building ordinance. This project has impacted Staff's time significantly.' AUTHORIZATION TO SOLICIT BIDS FOR CONTRACT 03~04 LIGHTING FOR FREEWAY UNDERPASS ARTWORK PROJECT 9:55 p.m: 8.1 (600-$5) Public Works Director Lee Thompson presented the Staff Report, indicating that this project would install a row of light fixtures above the murals on the walls of the. two freeway underpasses. The construction budget for the lighting portion of the project is $105,950. Mayor Lockhart asked if fluorescent used more energy. Mr. Thompson stated that fluorescent is an energy saving bulb. Mayor Lockhart asked about turning the lights off part of the day. Mr. Thompson stated the lights would have a dimmer for daytime which can be set up' with a photosensor or timer. On motion of Cm. Oravetz, seconded by Cm. Sbranti, and by unanimous vote, the Council authorized Staff to advertise for bids. LETIZR OF PARTICIPATION AGREEMENT FOR MULTI-FAMILY AFFORDABLE HOUSING GREEN BUILDING DESIGN ASSISTANCE 10:01 p.m. 8.2 (810~60/600~40) HoUsing Specialist Julia Abdala presented the Staff Report, indicating that in December of 2002, the City Council approved Dublin's application for participation in the Multi- Family Affordable Housing Green Building Design Assistance along with Eden Housing, CITY COUNCIL MINUTES VOLUME 22 Apri} '~ 2003 r A~E 217 ANALYSIS OF AFFORDABLE HOUSING PROJECTS 10 YEARS OLD OR OLDER May 2, 2003 Background In its consideration of the proposed Fairway Ranch Apartments, the Dublin City Council has requested information on how affordable housing projects age over time. To address this question, Klein Financial Corporation ("KFC") has surveyed older (preferably at least 10 years old) affordable housing projects located in California that are comparable in size and financial structure to the proposed Fairway Ranch Apartments. The survey sample includes family and senior apartment communities developed by both for profit and non profit developers, with an affordable component ranging from 20% to 100%. All of the projects were financed with tax-exempt bonds, often coupled with federal low' income housing tax credits. The financing structure has a direct bearing on the quality of construction and the maintenance requirements of affordable housing projects. Projects financed with tax- exempt bonds and low income housing tax credits are constructed to the same quality levels as market rate projects. The lenders, credit enhancers and tax credit investors, as part of their due diligence, review the final plans and specifications to ascertain that the construction is of sufficient quality to last the term of their investment, which is typically 30 years for the permanent lender. This contrasts dramatically with projects financed through the early HUD programs. Because HUD would not allow construction costs to exceed the national average, projects built in high cost areas such as California were cheaply and poorly constructed, resulting in rapid deterioration and heavy maintenance requirements as the projects age. The lenders, credit enhancers and tax credit investors also require that upon completion of construction, achievement of stabilized operations and conversion to the permanent financing, that monthly deposits be made to a replacement reserve account to be used to fund major repairs/replacements over the life of the project. The exact amount varies slightly by lender, but typically conforms to the Fannie Mae and Freddie Mac requirements of $200 per unit per month for the first five years of the permanent financing. For the Fairway Ranch Apartments, which will comply with the Fannie Mae/Freddie Mac requirements, this will amount to $729,600 per year for the family project and $772,800 per year for the senior project. On the fifth anniversary of the permanent financing, and every fifth anniversary thereafter, the lender/credit enhancer performs a physical needs assessment oft he property and adjusts the amount of the monthly deposit to the replacement reserve account stthat the monthly deposits will create a replacement reserve that will, in the lender/credit enhancer's judgment, be sufficient to meet the property's requirements for capital investments over the life of the loan. All disbursements from the replacement reserve account are subject to the lender/credit enhancer's approval. These requirements ensure that the funds for major ATTACHMENT repairs/replacements will be available when needed, rather than having to wait until funds become available while a property deteriorates. Affordable housing projects financed with bonds and tax credits are also subject to annual inspections to verify that routine maintenance needs are being satisfied. These inspections include inspections of occupied units. If an occupied unit needs new paint, carpet replacement or other maintenance, this work must be performed within a specified time period following the inspection. On market rate properties, new paint, carpet and the like would typically be provided only when the tenant vacates and the unit is made ready for a new tenant. Developers of mixed income projects financed with tax-exempt bonds and tax credits have an additional incentive to construct high quality projects and maintain them at superior levels. Mixed income projects require the cash flow generated by the market- rate units to maintain the project's profitability. Poorly constructed and poorly maintained projects will not command the requisite rental rates or occupancy levels. Affordable Housing Projects Surveyed The affordable housing projects KFC surveyed are as follows: Year of Developer Project Location [ No. of Percentage Completion Name Units & Affordable Type 1990 Mid- The Mountain 124 senior 100% Peninsula Fountains View units Housing Coalition (non profit) 1992 Mid- Baker Park San Jose 100 family 100% Peninsula units Housing Coalition (non profit) 1994 USA Vintage Citrus 241 senior 100% Properties Oaks Heights traits (for profit) 1992 USA Terracina at Elk Grove 124 family 100% Properties Elk Grove units (for profit) 1995 USA Las Serenas Simi Valley 108 senior 100% Properties units (for profit) I January 1996 Janss Holly St;eet Pasadena 374 family 20% Corporation Village i units 2 (for profit), Apartments with KFC as advisor Prior to 1993 Legacy Cascades Sunnyvale 184 family 20% Partners (for units profit) Prior to 1993 Legacy The San Ramon 248 family 20% Partners (for Seasons units profit) (aka Cedar Pointe) Prior to 1993 i Legacy Larkspur Larkspur 284 family 15% Partners (for Courts units profit) Prior to 1993 Legacy Mission Union City 152 family 20% Partners (for sierra units profit) Apartments Approximately New Cities Almaden San Jose 250 family 20% 1998 Development Lake units Corp. (for Village profit), with KFC as advisor, managed by Legacy Prior to 1993 Legacy St. Francis San 410 family 20% Partners (for Place Francisco units profit) t All of these projects were financed with tax-exempt bonds, and most with low income housing tax credits as well. Because the legislation creating the low income housing tax credit program was enacted in 1986, there are very few tax credit projects that are 10 years old or older. Consequently, we have included in the above list two projects that are 8 to 9 years old and one that is 5 years old, to increase our sample size. We have also included five projects that are approximately one-half the size of each of the Fairway Ranch Apartments. These smaller projects do not benefit from the economies of scale in construction and maintenance that the larger projects enjoy, and are consequently more costly to construct and to maintain. Interviews with the property managers for these communities yielded the following information: · The projects are of high quality construction, comparable to that of quality market rate apartment communities. All of the projects are well maintained, with sufficient cash flow to cover routine maintenance items. All of the projects have capital replacement budgets. Funds in the replacement reserve accounts have been more than sufficient to cover planned capital replacements (e.g., paint, asphalt, unit turnover costs), and are expected to be so for the next 10 years. None of the projects have experienced any abnormal maintenance problems or capital replacement requirements. None have experienced any structural problems. Some unexpected capital requirements have arisen, such as the new requirement to upgrade playground equipment to meet ADA stm~dards, and investments in energy efficiency upgrades to reduce energy costs in response to the significant increase in energy prices that has occurred over the last ten years. Surplus funds in the replacement reserve accounts have been sufficient to cover these unexpected capital investments. Turnover rates on the affordable family units range from 2 ½ % to 5% in high housing cost areas. In low housing cost areas, turnover rates on the affordable family units are higher, typically 25% to 35% per year, because the residents can save enough money to buy homes. Residents of the affordable senior units rarely move out, typically continuing to reside at the project until their health and medical needs necessitate alternative housing. Turnover rates on the market rate family units average 55% to 65% per year, which is comparable to typical turnover rates in the subject market areas. Concerns raised by tenants of the affordable units are mostly educational in nature, e.g., they want to know why their incomes need to be re-certified every year, why they need to provide financial and other information as part of the re- certification process and other questions related to the financing programs. Maintenance issues are seldom a problem, because the property managers respond to non-emergency maintenance requests within 24 hours of receipt. Property, Tour Klein Financial Corporation would be pleased to arrange a tour for the City Council and staff of mixed income apartment communities that are representative of the proposed Fairway Ranch Apartments, including an opportunity to talk directly with the property managers about the operating and maintenance characteristics of these properties. No amount of analysis can substitute for an actual inspection of the communities. Please let us know when would be convenient. PROPERTY MANAGEMENT FAIRWAY RANCH APARTMENTS May 8, 2003 Role of the Property Manager The property manager's ultimate objectives are to assure the short-term profitability and long-term value of the Fairway Ranch Apartments by maintaining high occupancy levels, physical asset integrity and financial viability. Tenant satisfaction is key to maintaining low turnover rates and high occupancy. Tenant satisfaction is, in turn, dependent on the condition o£the property, the lifestyle comfort (amenities, security, sense o£ community and the like) and the responsiveness o£the property manager to tenant requests. Typically, the property manager commences work upon completion o£ construction. However, to ensure that the above objectives are achieved, the property manager for the Fairway Ranch Apartments has been retained on a consulting basis during the design phase of the Apartments, to provide input to the site plan, floor plans, circulation patterns and other design aspects o£the properties to enhance their operations and long-term maintenance. The property manager also is advising the developer on projected rental rates, operating budgets and initial leasing plans. Upon completion of construction, the property manager will conduct the pre-opening activities, marketing, staffing, supervision, leasing, management of stabilized operations and reporting. Legacy Partners The developer o£the Fairway Ranch Apartments has retained Legacy Partners to provide consulting services during the design and financial structuring phases of the project, as described above. Legacy Partners will also serve as the property manager upon completion o£ construction, provided, of course, that its performance during the consulting period is satisfactory. Legacy Partners was created in 1998 from the operations of the Western United States Region of Lincoln Property Company by the principals of that Region. For more than 30 years, the Legacy Partners team has defined the residential and commercial real estate industry in the West through a focus on service and an understanding of the many needs of real estate investments. Legacy Partners manages in excess of $3.8 billion in apartment, office, research and development, industrial, warehouse/distribution and retail properties. Legacy Partners has developed more than 55,000 apartment units, and its management portfolio currently includes more than 25,000 units in over 90 projects located in six western states. Sixty percent of these units are managed for third parties, including such respected organizations as Allegis Realty Investors LLC, AMB Property Corporation, American International Group, The Archon Group, Donaldson, Lufkin & Jenrette Real Estate Capital Partners, Inc., General Electric Capital Corporation, SSR Real Estate Advisors, Goldman, Sachs & Company, Invesco, J.P. Morgan Investment Management, Inc. TIAA-CREF, and Prudential Realty Group. In its residential operations, the Company currently employs 620 residential on-site employees, 106 administrative and 9 corporate personnel. Its extensive portfolio enables it to attract and retain highly qualified personnel. Based on its experience, operating policies, financial resources and professional reputation, Legacy Partners has been awarded the prestigious Accredited Management Organization (AMO) designation from the Institute of Real Estate Management (IREM). In addition, several individuals in the upper-level management team have earned the distinguished Certified Property Manager (CPM) designation awarded by IREM for meeting its rigid educational requirements. Legacy Partners is an active participant in many organizations with excellence in the management industry, including the National Housing Council, Multi-Housing, Urban Land Institute, numerous Apartment Associations, IREM, National Apartment Association (NAA) and Building Owners and Managers Association (BOMA), and its team members serve as either Board of Directors or Officers of many of these organizations. Legacy Partners has specific expertise in the management of mixed income family and senior apartment communities similar to the Fairway Ranch Apartments. Legacy currently manages 21 mixed income family projects in California, ranging in size from 100 to 600 units, and representing a total of approximately 5,300 apartment units. Tax- exempt bonds were used to finance all but three of these properties, and many involve federal low income tax credits, so Legacy is well-versed in the compliance and monitoring requirements of bond and tax credit financing. In addition, Legacy currently manages 8 senior apartment communities in California, representing approximately 800 units. Four of these have an affordable component. Legacy also has experience operating shuttle services to serve residents, comparable to that proposed for the Fairway Ranch Apartments. For example, Legacy operated a shuttle service for a 336-unit apartment community that provided service seven days per week on a fixed route to commercial and retail centers. It was used with great enthusiasm by the residents, and especially the senior residents. Legacy (through the property) employed the driver, maintained the equipment and secured all attendant insurance and licenses. The developer will determine whether to contract with Legacy or a local transit agency to operate the shuttle service, after receipt and review of proposals from each. To ensure compliance with the bond and tax credit requirements, the developer will retain Novogradac and Company, a San Francisco-based CPA firm that is the industry leader in bond and tax credit compliance, to perform compliance audits. The tax credit investor will also audit compliance. Legacy has an unblemished compliance record. Legacy's Vice President, Michael King, would be happy to arrange a tour for interested City Council members and City staff of mixed income apartment communities that Legacy mintages, to demonstrate the quality of the properties and o£the management.