Deal aims to ‘financially restructure, substantially renovate, and preserve the affordability’ of Cordova Street Concord senior housing project; generate funds for city coffers, fire and police retirement system
Published : Wednesday, December 19, 2018 | 5:50 AM
Moving against a complex rising tide of homelessness, the City Council Monday addressed supportive housing for seniors by unanimously approving a deal for the sale of the 14-story Concord Housing complex at 275 E. Cordova Street.
The deal passed on an evening when the Council also approved a senior supportive housing development at Heritage Park South on Fair Oaks Avenue.
According to a report presented by Housing Director Bill Huang, the deal “would financially restructure, substantially renovate, and preserve the affordability” of the Concord senior housing project.
While the transaction was viewed favorably by the Council, Councilmember Steve Madison said he was leery of “losing title” to the building, wanting to make sure that the property would remain an affordable housing site for longer than the prescribed 55-year renewable commitment.
“In 55 years, my hunch is that we are still going to need affordable housing. What happens then?” Madison asked.
Huang explained that 55 years is the “industry standard” for these types of affordable housing projects, and the affordability status is simply renewed each term.
Anders Plett, VP of Business Acquisition and Development for Retirement Housing Foundation (RHF), the buyer and developer, also explained to Madison, that the question of “55 years” has never come up in his experience.
“Our whole mission is to build and manage low-income projects like this, indefinitely,” he said, as the company “re-sets” the 55-year clock with each project renovation and refinance.
“We renovate and refinance every fifty years with projects like this,” Plett added.
The council then approved the staff recommendation, on an amended motion from Councilmember Madison, directing the housing staff to research “the possibility of tying the affordability component of the project with the land, and thus ensuring that affordable housing at the location would continue in perpetuity, as opposed to the proposed 55 years.”
According to the Housing Department staff report, the Concord is a 150-unit low income senior citizen rental housing complex totaling 87,738 square feet, constructed in 1966 on a 1.2 acre site at 275 East Cordova Street. It holds 149 age, income, and rent restricted units, and one resident manager’s unit.
The City purchased the Concord Senior Housing property from then-owner RHF Housing in July 1989, and entering into a 42-year ground lease with RHF as tenant and operator of the Concord.
The purchase was funded from set-aside monies from the 1989 Discretionary Contribution Fund to the Fire and Police Retirement System (“FPRS”) , to create low income senior housing for the residents of the City, and provide an asset for the benefit of FPRS. The Board of Directors authorized a 93% beneficial interest in the Concord property to FPRS, in lieu of the City contributing Discretionary Contribution Funds.
FPRS would be entitled to receive 100% of all positive cash flow owed to the City from the lease, rental, or operation of the Concord during the ground lease period July 31, 1989 through August 1, 2031.
Now, according to the staff report, the 52-year old apartment complex is in need of renovation, which it has not had, except for installation of a fire sprinkler system in 1993.
Thus, the City will sell to RHF the Concord property, less the surface parking area, subject to City approval of a parcel map application that is currently in progress. The preliminary estimate of the sale price for the Concord property is $44.28 million. The surface parking lot parcel will be held and maintained by the City for future disposition and development.
RHF will then pay an estimated amount of $22.27 million of cost in cash to the City over three installments—$15.19 million when escrow closes on all financing and the City transfers title to RHF; $6.32 million when the construction financing converts to a permanent loan ; and $0.76 million when RHF files its first-year tax return and IRS Form 8069.
According to the staff report, “based on current estimates, it is projected that the City Seller Note will be paid off in 35 years, but the report noted that “as such payments would be from residual receipts, there is no guarantee.”
FPRS will continue to receive its 93% beneficial share of any annual loan payments on the City Seller Note.
RHF will perform a “substantial renovation” of the Concord complex, bringing it up to market standards, according to the Housing Department report.
Renovations of resident units would include replacing kitchen and bathroom cabinets and countertops, plumbing fixtures and appliances; adding new light fixtures; new flooring and window coverings; replacing 50% of all doors; providing heating and cooling units; modifications to comply with current ADA standards. RHF would also replace hot water heaters, boilers, piping, exhaust fans, generator, the fire alarm system; upgrade the elevator systems; replace the fire alarm system; and install a new security camera system, among numerous other renovations.
The project rehabilitation is expected to be competed in 2022.
The completed sale and project will generate an estimated $22.27 million in cash proceeds from the sale of the Concord property to RHF. Of this total, $21.16 million will be paid to FPRS and the balance of $1 .11 million will be deposited into the City’s Housing Successor Fund. The sale will begin to generate cash for the City in eight years, said Mayor Terry Tornek.