The City Council Economic Development and Technology Committee Tuesday unanimously approved a recommendation to fund the acquisition by Heritage Housing Partners of a circa-1885 home owned by the City of Pasadena to be developed as fully affordable rental housing.
The property consists of five dwelling units of varying sizes and a paved car park with 11 parking spaces and is located at 1421 N. Fair Oaks Ave.
According to a Department of Housing presentation by Project Manager Jim Wong, the property was originally put up for sale by its owners in March at an asking price of $1.45 million, and marketed as a ready-for-occupancy turnkey project with only minor repair items needed. Later that month, the City made an offer for the property, but was informed the owner had accepted an offer from a competing buyer.
When the third-party buyer backed out of the transaction, the City saw a second opportunity and submitted an offer.
But after “extensive due diligence” performed by Housing Department staff on instructions from the City Council, it was determined that instead of being a turnkey project, repairs would have to be done on the property before being placed in service as affordable rental housing.
“During our due diligence we saw that there was a bit more rehab than we had expected out of a turnkey project,” Wong said. “And so the city canceled the transaction at that point.”
Heritage housing partners then took an interest in the property and negotiated with the sellers, and now they are in a purchase and sale agreement.
Escrow was recently opened at the sale price of $1.3 million, a lower price than what the city had recently negotiated, he said.
According to Wong, the project budget on which the city loan agreement will be $1. 54 million, which is based upon the $1.3 million acquisition, $186,000 for rehabilitation, $40,000 in capitalization replacement and operating reserves, a developer fee of $10,000 and roughly $3,500 in related title and escrow transaction costs.
The project will be funded from the City’s inclusionary housing trust fund. The units, pursuant to a city deed restriction is low income, which is 80% of the area’s median income, said Wong.
Under the proposed Affordable Housing Loan Agreement, HHP will acquire the property, make the necessary remediation and repairs, and operate the property as affordable rental housing for low-income individuals and families.
The Housing Department said the project’s total budget is $1.54 million, consisting of $1.3 million for acquisition, $186,500 for remediation and repairs, $40,000 for capitalized replacement or operation reserves, $10,000 for developer acquisition fee, and $3,500 for title and escrow costs.
The project budget, under the proposed agreement, will be financed entirely with City loan assistance, the Housing Department said.
The Department also recommended that the City Council approve a budget amendment to appropriate $1.54 million from the Inclusionary Housing Fund Unappropriated Fund balance to the Housing Department’s fiscal year 2021 operating budget for this HHP Acquisition Project.
The committee recommendation will be taken up by the full City Council at an upcoming meeting.