HomeMy WebLinkAbout- - RDA 7610 Harpers Pointe Attachment 6 - 7/6/2010AbVlsofts IN:
REAL ESTATE
REDEVELOPMENT
AFFoitE7ABLE HOUSING
ECONOMIC DEVELOPMENT
SAN FRANCISCO
A.IERRY KEYSER
TIMOTHY C. KELLY
]GATE EARLE FUNK
DEBBIE M. KERN
ROBERT J. WETMORL
REED T- KAWAH ARA
LOa AKGLLLb
KATHLEEN H. HEAP
JAMES A. RABE
PAUL C. ANDERSON
GREGORY D. SPO-HOO
KEVIN E. ENGSTROM
JULIE L. ROMEY
DENISE BIC.KERSTAFF
SAN D IGD
GERALD M. TKIMBLt
PAUL C. MARRA
KEYS E R MARSTON AS S O C LATE STM
ADVISORS IN rUBLIC/PRIVATE REAL ESTATE DEVELOPMENT
MEMORANDUM
To: Muriel Ullman, Neighborhood Improvement Manager
Costa Mesa Redevelopment Agency
From: Kathleen Head
Tim Bretz
Date: June 24 ,2010
Subject: Baker Street Senior Apartments - Financial Gap Analysis
At your request, Keyser Marston Associates, Inc. (KMA) prepared a financial gap
analysis for the Baker Street Senior Apartments being proposed by USA Properties
Fund (Developer). The Developer proposes to acquire an approximately 38,000 square
foot parcel (Site) located at 845 West Baker Street and construct a 53 -unit apartment
complex which will be restricted to very -low and low income senior citizens (Project).
Seven one -bedroom units will be restricted to households which comply with the
requirements of the Mental Health Services Act Housing (MHSA) Program.
The Developer is requesting financial assistance totaling $1.38 million from the City of
Costa Mesa (City) and the Costa Mesa Redevelopment Agency (Agency). The purpose
of this analysis is to estimate the financial gap associated with the Project.
ESTIMATED DEVELOPMENT COSTS (TABLE 1)
The Developer is proposing to purchase the Site for a purchase price of $3.70 million,
which includes $500,000 in lease termination costs. Consequently, the proposed land
value portion of the purchase price is estimated at $3.20 million. An appraisal prepared
by Novogradac & Company, LLP on May 4, 2010 estimates the land -only value of the
Site at $2.50 million. Thus, the proposed land value portion of the purchase price is
approximately 28% higher than the appraised value. The Developer should submit a fair
market value appraisal of the Site, which confirms the purchase price before the City and
Agency enter into a binding transactional agreement.
500 SOUTH GRAND AVENUE, SUITE 1480 Ir LCIS ANGELES, CALIFORNIA 90071 )• PHONE: 213 622 8095 )p FAx: 213 622 5204
1006018. C M: K H H: T B: g bd
WWW.KEYSERMARSTON.COM 11391.001.036
To: Muriel Ullman, Costa Mesa Redevelopment Agency June 24, 2010
Subject: Baker Street Senior Apartments - Financial Gap Analysis Page 2
The Project includes 51 one -bedroom units and two two-bedroom units totaling
approximately 49,000 square feet of gross building area (GBA). The direct cost
estimates assume prevailing wage requirements will not be imposed on the Project.
KMA estimates the total development costs at $14.29 million, while the Developer
estimates the total development costs at $14.51 million. The primary differences
between the KMA and Developer estimates are: the direct cost contingency allowance;
the architecture, engineering and consulting costs; and the construction interest costs.
However, the $219,000, or approximately 2%, differential is considered inconsequential
for a project of this magnitude.
STABILIZED NET OPERATING INCOME (TABLE 2)
The Tax Credit program publishes rent standards for projects receiving Tax Credits. The
California Redevelopment Law (CRL) defines a calculation methodology to determine
the affordable rents for projects assisted with Set -Aside funds. In order for the Agency
to be allowed to count the units in the Project towards the production and expenditures
proportionality requirements imposed by the CRL, the rents must comply with the CRL
affordable housing cost definition.
Both the KMA and Developer analyses are based on the following household income
and affordable rent standards:
Income Restrictions: The tenant's income can not exceed the stricter of:
a. CRL income restrictions as defined under California Health and Safety
Code Section (Section) 50105 for very -low income households and
50079.5 for low income households;
b. The requirements set for in the MHSA Program for the MHSA-designated
units;
C. United States Department of Housing and Urban Development (HUD)
HOME (HOME) Program income restrictions as defined under United
States Code, Title 26, Section 142 (d)(2)(B); and
d. Federal Low Income Housing Tax Credits income restrictions as defined
under United States Code, Title 26, Section 142 (d)(2)(B).
1006018. CM: KH H:TB:gbd
11391.001.036
To: Muriel Ullman, Costa Mesa Redevelopment Agency June 24, 2010
Subject: Baker Street Senior Apartments - Financial Gap Analysis Page 3
2. Affordable Rent Restrictions: Rents applied to all units must reflect the more
stringent of:
a. CRL very -low and low income rents based on the methodology defined in
Section 50053;
b. The requirements set forth in the MHSA Program for the MHSA-
designated units;
C. HOME Program Low rents published annually by HUD; and
d. The Tax Credit rents published annually by the California Tax Credit
Allocation Committee (TCAC).
KMA and the Developer estimated the Project's gross rental income at $581,300, which
includes the income derived from the seven Section 8 Project -Based Vouchers (PBVs)
issued by the Orange County NOFA. Laundry and miscellaneous income is estimated at
$9 per unit per month.
Both KMA and the Developer applied a 5% vacancy and collection allowance. The
resulting effective gross income (EGI) is estimated by KMA and the Developer at
$551,900.
As shown in Table 2, KMA and the Developer estimate the residential operating
expenses at $262,700. When the Project's EGI is reduced by the operating expenses,
KMA and the Developer estimate the stabilized net operating income (NOI) at $289,200.
AVAILABLE OUTSIDE FUNDING SOURCES (TABLE 3)
KMA estimates the total available outside funding sources as follows:
A $2.07 million conventional loan, which is based on the NOI supported by the
Project's income without the inclusion of the Section 8 Subsidy. KMA utilized the
following conventional loan assumptions:
a. A 1.20 debt service coverage ratio;
b. A 7.25% interest rate; and
C. A 30 -year amortization period.
1006018. CM: KH H:TB:gbd
11391.001.036
To: Muriel Ullman, Costa Mesa Redevelopment Agency June 24, 2010
Subject: Baker Street Senior Apartments - Financial Gap Analysis Page 4
2. The seven Section 8 PBVs are estimated to support an additional $657,000
conventional loan, which is based on the following assumptions:
a. A 1.20 debt service coverage ratio;
b. A 7.25% interest rate; and
C. A 15 -year amortization period.
3. The net Tax Credit equity available to the Project is estimated at $7.66 million,
which is based on the following assumptions:
a. A requested eligible Tax Credit Basis of $8.39 million;
b. A gross Tax Credit amount of $9.82 million; and
C. A Tax Credit equity rate of $0.78 per gross Tax Credit Dollar.
4. The Developer estimates the Project will be awarded $757,000 in Orange County
MHSA funds.
5. The Developer estimates the Project will be awarded $743,000 in Orange County
NOFA funds.
6. A $636,000 deferred Developer Fee, or 50% of the estimated Developer Fee,
was provided, which is the maximum allowed to be deferred by TCAC.
7. The Developer included a general partner loan of $400,000.
KMA estimates the total available outside funding sources for the Project at
$12,914,000. In comparison, the Developer estimates the outside funding sources at
$13,133,000. This approximately $219,000 differential is due to the difference in total
development costs, but is considered inconsequential for a project of this magnitude.
FINANCIAL GAP CALCULATION (TABLE 3)
The financial gap is estimated by deducting the available outside funding sources from
the Project costs. Based on the assumptions outlined in this analysis, KMA calculates
the financial gap as follows:
Total Development Costs $14,289,000
(Less) Total Available Funding Sources (12,914,000)
Financial Gap $1,375,000
Per Unit $25,900
1006018. CM: KH H:TB:gbd
11391.001.036
To: Muriel Ullman, Costa Mesa Redevelopment Agency June 24, 2010
Subject: Baker Street Senior Apartments - Financial Gap Analysis Page 5
Thus, KMA concludes the Developer's request of $1.38 million in financial assistance is
warranted. However, this amount is conditioned upon an appraisal which verifies the
proposed purchase price of the Site.
The financial assistance provided by the City and Agency will be comprised of the
following:
Property Tax Increment Housing Set -Aside (Set -Aside) funds provided by the
Agency;
2. Property Tax Increment (TI) funds provided by the Agency; and
3. A City loan of HOME Program funds (HOME Loan).
CONCLUSIONS
Based on the preceding analysis, KMA concludes the Developer's request of $1.38
million in financial assistance from the City/Agency is warranted.
Prior to entering into a binding transactional agreement with the Developer, a fair market
value appraisal of the Site should be performed which verifies the purchase price of the
property.
Attachment
1006018. CM: KH H:TB:gbd
11391.001.036
TABLE 1
ESTIMATED DEVELOPMENT COSTS
BAKER STREET SENIOR APARTMENTS
COSTA MESA, CALIFORNIA
I. Property Assemblage Costs
Property Acquisition Costs
37,897
Sf Land
$98
/Sf Land
$3,700,000
Buyer Paid Commissions 2
125,000
Relocation Costs'
250,000
Total Property Assemblage Costs
$4,075,000
II. Direct Costs 3
Off-site Improvements
$0
On-site Improvements
37,897
Sf Land
$15
/Sf Land
566,000
Podium Parking Costs
38
Spaces
$22,799
/Space
866,000
Residential Shell Costs
41,780
Sf GBA
$90
/Sf GBA
3,760,000
Community Room Costs
2,327
Sf GBA
$65
/Sf GBA
152,000
Commercial Shell Costs
5,000
Sf GBA
$20
/Sf GBA
100,000
Furnishings, Fixtures & Equipment
-
Contractor Fees / General Requirements
14%
Construction Costs
762,000
Contingency Allowance
5%
Other Direct Costs
310,000
Total Direct Costs
49,107
Sf GBA
$133
/Sf GBA
$6,5169000
III. Indirect Costs
Architecture, Engineering & Consulting
8%
Direct Costs
$521,000
Permits & Fees 4
53
Units
$10,849
/Unit
575,000
Taxes, Legal & Accounting
3%
Direct Costs
167,000
Insurance'
53
Units
$3,318
/Unit
176,000
Marketing & Leasing'
53
Units
$2,000
/Unit
106,000
Developer Fee 5
15%
Eligible Basis
1,272,000
Contingency Allowance
5%
Other Indirect Costs
141,000
Total Indirect Costs
$299589000
IV. Financing Costs
Interest During Construction 6
$6,336,000
Loan Amount
5.25%
Interest
$366,000
Financing Fees
Construction Loan
$6,336,000
Loan Amount
1.00
Points
63,000
Permanent Loan
$2,065,000
Loan Amount
2.50
Points
52,000
Section 8 Subsidy
$657,000
Loan Amount
2.50
Points
16,000
Reserves'
Operating
5
Months Operating Expenses / Debt
Service
180,000
Replacement
53
Units
$0
/Unit
-
TCAC Fees 7
63,000
Total Financing Costs
$740,000
V
rotal Construction Costs 49,107 Sf GBA $208 /Sf GBA $10,214,000
rotal Development Costs 49,107 Sf GBA $291 /Sf GBA $14,289,000
' Based on Developer estimate.
2 The Agency has agreed to include the Buyer Paid Commissions in the Project budget.
3 Estimates assume prevailing wage requirements will NOT be imposed on the Project.
4 Based on estimate provided by City staff.
5 This amount is the maximum allowed by TCAC.
6 Includes debt on the 38% of the Tax Credit Equity which will not be funded during construction. Assumes a 12 -month construction period with a
60% average outstanding balance and a 6 -month absorption period with a 100% average outstanding balance.
Includes a $2,000 application fee; $410/unit monitoring fee; and 4% of the gross Tax Credit proceeds for one year.
Prepared by: Keyser Marston Associates, Inc.
Filename: Baker St Srs 6 23 10; Pro Forma; trb
TABLE 2
STABILIZED NET OPERATING INCOME
BAKER STREET SENIOR APARTMENTS
COSTA MESA, CALIFORNIA
I. Gross Residential Income'
Manager's Unit
1 Unit
$0 /Unit/Month $0
1 -Bedroom Units Ca) (532-Sf)
$581,300
VL Inc Redev/MHSA/TC @ 30% Median
7
Units
$228
/Unit/Month
19,200
VL Inc Redev/TC @ 40% Median
8
Units
$672
/Unit/Month
64,500
VL Inc Redev/TC @ 45% Median
6
Units
$759
/Unit/Month
54,600
VL Inc Redev/TC @ 50% Median
13
Units
$846
/Unit/Month
132,000
Low Inc Redev/TC @ 60% Median
16
Units
$1,021
/Unit/Month
196,000
2 -Bedroom UnitsoC (782-Sf)
Services
53
Units
$226
/Unit
VL Inc Redev/TC @ 30% Median
1
Unit
$597
/Unit/Month
7,200
VL Inc Redev/TC @ 50% Median
1
Unit
$951
/Unit/Month
11,400
Section 8 Subsidy
1 -Bedroom Units Ca) (532-Sf)
VL Inc Redev/MHSA/TC @ 30% Median 7 Units $1,083 /Unit/Month 91,000
Laundry/Miscellaneous Income 53 Units $9 /Unit/Month 5,400
Gross Income
$581,300
(Less) Vacancy & Collection Allowance
5%
Gross Income
(29,400)
Effective Gross Income
$551,900
II. Operating Expenses
General Operating Expenses
53
Units
$3,700
/Unit
$196,100
Property Taxes 2
53
Units
$470
/Unit
24,900
Services
53
Units
$226
/Unit
12,000
MHSA Servicing Fee
53
Units
$60
/Unit
3,200
Replacement Reserve
53
Units
$500
/Unit
26,500
Total Operating Expenses $262,700
III. I Net Operating Income $289,200
Based on Orange County 2010 Incomes distributed by HUD/HCD. As pertinent, the rents are based on rents published in 2010 by TCAC and
California Health and Safety Code Section 50053. Utility Allowances per the Orange County Housing Authority: $25 for 1-Bdrm units and $30 for 2-
Bdrm units, which includes gas cooking, gas heating, gas water heating, basic electric and water.
2 Based on Developer estimate. Assumes that the Developer will receive the property tax abatement accorded to non-profit housing organizations
that develop income -restricted apartments.
Prepared by: Keyser Marston Associates, Inc.
Filename: Baker St Srs 6 23 10; Pro Forma; trb
TABLE 3
FINANCIAL GAP CALCULATION
BAKER STREET SENIOR APARTMENTS
COSTA MESA, CALIFORNIA
I. Available Funding Sources
Permanent Loan - Base Income
Net Operating Income
Income Available for Mortgage
Interest Rate
Permanent Loan
Permanent Loan - Section 8 Subsidy'
Effective Gross Income
Income Available for Debt Service
Interest Rate
Total Permanent Loan - Section 8 Subsidy
Tax Credit Equity 2
Gross Tax Credit Value
Syndication Rate
Net Tax Credit Equity
Orange County MHSA3
Orange County NOFA3
Deferred Developer Fee
GP Loan 3
Total Available Funding Sources
$202,810 NOI (See Table 2)
1.20 DCR
7.25% Interest Rate
$86,390 EGI
1.20 DCR
7.25% Interest Rate
$9,815,000
$0.78 /Tax Credit Dollar
$169,008 Debt Service
8.19% Mortgage Constant
$71,990 Debt Service
10.95% Mortgage Constant
$2,065,000
$657,000
$7,656,000
$757,000
$743,000
$636,000
$400,000
$12,914,000
II. Financial Gap Calculation
Total Available Funding Sources $12,914,000
(Less) Total Development Costs (14,289,000)
Financial Surplus / (Financial Gap) 53 Units ($25,900) /Unit ($1,375,000)
1 Assumes the Section 8 Subsidy will be provided for a guaranteed term of 15 years.
2 Assumes an $8.39 million requested eligible basis, which includes a $1.41 million voluntary exclusion, a 130% difficult -to -develop premium, a 9.0%
Tax Credit rate and an applicable fraction of 100%.
3 Based on Developer estimate.
4 Assumes the Developer will defer 50% of the Developer Fee.
Prepared by: Keyser Marston Associates, Inc.
Filename: Baker St Srs 6 23 10; Pro Forma; trb