City of Culver City, California
Agenda Item Report
Meeting Date: 08/02/10 Item Number: A-1
REDEVELOPMENT AGENCY BOARD AGENDA ITEM: (1) Approval of an Affordable
Housing Agreement with 4043 Irving Place Investors, LLC. to Create Nine Moderate
and Three Low Income Housing Units at 4043 Irving Place; (2) Approval and
Adoption of the Mitigated Negative Declaration and Mitigation Monitoring Program;
and (3) Approval of a Related Budget Amendment.
Contact Person/Dept.: Todd Tipton,
Redevelopment Administrator, Tevis
Barnes, Housing Division Manager
Phone Number: (310) 253-5783 and 5782
Fiscal Impact: Yes [X] No [] General Fund: Yes [] No [X]
Public Hearing: [] Action Item: [X] Attachments: [X]
Commission Action Required: Yes [] No [X] Date: _______________
Public Notification: (USPS) All individuals who spoke during the 7/26/10 public meeting
via email, (E-Mail) Meetings and Agendas – Redevelopment Agency (08/05/10).
Department Approval:
Sol Blumenfeld: 08/04/10
Agency General Counsel Approval:
Murray Kane: (08/04/10)
Chief Financial Officer Approval:
Jeff Muir (by N. Kimball) (08/04/10)
Executive Director Approval:
Martin R. Cole (08/05/10)
RECOMMENDATION:
Staff recommends the Redevelopment Agency Board (Agency Board) approve an
Affordable Housing Agreement with 4043 Irving Place Investors, LLC. (Developer) to
provide approximately $6 million in funding for the creation of nine moderate and
three low income housing units at 4043 Irving Place (Property).
BACKGROUND:
On July 26, 2010, the Agency Board considered this item and continued the
discussion until tonight so that residents of the surrounding neighborhood would
have an opportunity to meet with the Agency’s financial consultant, Keyser Marston
Associates (“KMA”), to discuss the funding parameters. A copy of the July 26
th
Agency Agenda Item Report is attached.
On August 2, 2010, a meeting was conducted in City Hall that was attended by five
Downtown Neighborhood Association (“DNA”) members, one Gateway Association
member, a resident/affordable housing advocate, staff and KMA. During the
meeting the DNA presented a series of questions (attached) that generally related to
the rental incomes included in the pro forma, developer experience and leveraging
of Agency funds among other things. Staff’s response to questions posed by the
DNA during the meeting is attached. Additionally, subsequent correspondence from
the affordable housing advocate is attached for review.
City of Culver City, California
Agenda Item Report
DISCUSSION:
During the meeting KMA provided a summary of their analysis and explained their
methodology, which focuses on determining the project Feasibility and Affordability
Gaps|1010|. In this case, the Feasibility Gap is approximately $3.4 million and the
Affordability Gap is approximately $2.6 million. KMA’s analysis is attached for
review.
The DNA expressed concern that the market rents provided by the Developer were
too high for the area. KMA explained that they had examined the Developer’s
market rent figures and that new, high-end rental units near downtown could
generate the necessary rents as evident by rates being achieved in Playa Vista for
similar housing product and the lack of new housing in Culver City. Staff utilized
Trulia, an onsite real estate search site, to identify properties
currently available for
rent in Culver City, Palms, Glencoe/Redwood and Playa Vista; staff’s findings are
depicted in the attached memorandum.
Pursuant to the DNA’s request, KMA agreed to recreate their analysis using a
market rent that was $1,000 less ($1,835 per month for a one-bedroom unit and
$2,516 for a two-bedroom unit) than that identified by the Developer. KMA’s
analysis indicates that a rental rate reduction of this magnitude would require an
additional $900,000 in Agency assistance. Absent additional assistance, the
Developer would likely incur a debt service shortfall of approximately $45,000
annually. KMA’s recreated analysis is attached for review.
The entity that finances the project will make rent projections as part of their
underwriting process. If the financing entity concludes that the Developer’s rent
projections are unrealistic, the lender will reduce the amount of financing that it will
approve for the project. If sufficient funding is not provided, then the Project will not
be constructed and the Affordable Housing Agreement will terminate without any
assistance being provided.
If the lender accepts the rent projections, and the actual rents are dramatically less
than the projections, negative cash flows may be experienced. If this occurs over a
protracted period of time, the Developer may increase his equity contribution or find
it advantageous to allow the project to be foreclosed upon. If foreclosed upon, the
financing entity would take the property back and resell it at a price that was
supported by the actual net operating income. However, the new owner would be
subject to the deed restrictions on the 12 affordable units, including the
management, maintenance and reporting obligations.
The DNA expressed concern that the Developer lacked the experience to manage
and maintain the project. Collectively, the Developer has more than 25 years in the
real estate industry and owns numerous affordable units. As reported during the
July 26 meeting, staff has visited multiple properties owned by the Developer and
found them to be well maintained and managed. The Developer further explained City of Culver City, California
Agenda Item Report
that after owning more than 30 real estate projects, none have been subject to
foreclosure. Letters supporting the Developer’s experience are attached for review.
Some DNA members recommended that the Agency’s assistance be leveraged (by
obtaining bond financing, tax credits, etc.) in order to secure additional sources of
financing that would result in the creation of additional affordable units or units for
Very Low Income individuals. Further, the DNA recommended that the Agency
consider partnering with an affordable housing developer to create a project
comprised entirely of affordable units. The Comprehensive Housing Strategy
approved by the Agency provides for smaller, scattered site mixed income projects,
which staff believes are generally inconsistent with these types of leveraged
projects.
Summary
During the meeting the DNA referred to the Agency’s assistance as a “bailout”.
While it may be true that a Developer would not construct a new rental project, with
no possibility to convert to condominiums in the future, in this economic climate, staff
believes it worthwhile to provide the proposed assistance in order to create new
affordable rental housing opportunities in the downtown area. The creation of new
affordable housing will allow the Agency to fulfill its statutory requirement to create
affordable housing and allow the City to make some progress in satisfying its
Regional Housing Needs Assessment requirements.
Staff believes the Developer has the financial wherewithal and experience to
construct and manage this project. Further, Agency General Counsel has indicated
the enforcement and security provisions included in the Affordable Housing
Agreement will protect the Agency and its affordable units in the event the Developer
fails to perform. Agency General Counsel has also indicated that the DNA’s
concerns related to the ongoing maintenance of the Property are already addressed
in Section 4 of the Agreement Containing Covenants, which grants the Agency (for
the 55-year term of affordability) property inspection rights upon 72 hours’ notice, as
well as other rights and remedies to assure proper management and maintenance of
the Property.
FISCAL ANALYSIS:
The approximate $6 million in proposed financial assistance equates to $499,000
per affordable unit. Assuming an average unit size of 1,200 square feet, this
equates to a per square foot cost of $416. This amount is in an affordable unit cost
range that is consistent with what Santa Monica ($460 per square foot) expends on
affordable units and what the Agency will likely spend on the Globe Avenue project
($433 per square foot).
City of Culver City, California
Agenda Item Report
The financial assistance will be funded from the Low/Moderate Income Housing
Fund, which has an available appropriable balance of approximately $16 million.
The available appropriable balance is the amount available after making the $11
million loan to the Agency’s Tax Increment Fund to pay the Agency’s Fiscal Year
2009/2010 SERAF obligation. Should the Agency Board approve the requested
financial assistance, the available appropriable balance would decrease to
approximately $10 million, then increase incrementally over the next five years as
new tax increment revenues are generated and the SERAF loan is repaid to the
Low/Moderate Income Housing Fund.
ATTACHMENTS:
1. July 26, 2010 Agency Agenda Item Report;
2. Responses to questions posed by the DNA during the August 2
nd
meeting with
KMA and staff;
3. KMA’s 8/2 financial analysis;
4. KMA’s financial analysis examining reduced rents;
5. Memorandum examining comparable rents;
6. Documents identifying Developer experience;
7. Correspondence;
8. Mitigated Negative Declaration and Mitigation Monitoring Program
9. KMA’s response to correspondence.
MOTION:
That the Agency Board:
1. Approve and adopt the Mitigated Negative Declaration and Mitigation
Monitoring Program for the project, in the form previously adopted by the City
Council; and,
2. Approve a Budget Amendment appropriating $6 million from the
Low/Moderate Income Housing Fund pursuant to the Affordable Housing
Agreement; and,
3. Approve an Affordable Housing Agreement with 4043 Irving Place Investors,
LLC. to create nine Moderate and three Low Income affordable housing units
at 4043 Irving Place; and,
4. Authorize the Agency General Counsel to review/prepare the necessary
documents; and,
5. Authorize the Executive Director to execute such documents on behalf of the
Agency. City of Culver City, California
Agenda Item Report
Notes:
|1010| The Feasibility Gap results from the Developer foregoing the potential to convert the units to
condominiums during the 55 year period and the Affordability Gap results from the Developer
discounting the rents for the 12 affordable units.
MEETING DATE: 08.09.10
AGENDA ITEM: Continuation of the Public Meeting to Consider (1)
Approval of an Affordable Housing Agreement with 4043
Irving Place Investors, LLC. to Create Nine Moderate and
Three Low Income Housing Units at 4043 Irving Place;
(2) Approval and Adoption of the Mitigated Negative
Declaration and Mitigation Monitoring Program; and (3)
Approval of a Related Budget Amendment.
ATTACHMENTS
Pages
1 July 26, 2010 Agency Agenda Item Report. 1-4
2 Responses to questions posed by the DNA 5-7
during the August 2
nd
meeting with KMA and staff.
3 KMA’s 8/2 financial analysis. 8-17
4 KMA’s financial analysis examining reduced rents. 18-27
5 Memorandum examining comparable rents. 28-33
6 Documents identifying Developer experience. 34-40
7 Correspondence. 41-46
8 Mitigated Negative Declaration and Mitigation 47-67
Monitoring Program.
9 KMA Response to Correspondence 68-72
City of Culver City, California
Agenda Item Report
Meeting Date: 07/26/10 Item Number: A-1
REDEVELOPMENT AGENCY BOARD AGENDA ITEM: (1) Approval of an Affordable
Housing Agreement with 4043 Irving Place Investors, LLC. to Create Nine Moderate
and Three Low Income Housing Units at 4043 Irving Place; (2) Approval and
Adoption of the Mitigated Negative Declaration and Mitigation Monitoring Program;
and (3) Approval of a Related Budget Amendment.
Contact Person/Dept.: Todd Tipton,
Redevelopment Administrator, Tevis
Barnes, Housing Division Manager
Phone Number: (310) 253-5783 and 5782
Fiscal Impact: Yes [X] No [] General Fund: Yes [] No [X]
Public Hearing: [] Action Item: [X] Attachments: [X]
Commission Action Required: Yes [] No [X] Date: _______________
Public Notification: (USPS) All businesses, occupants and property owners within a 500
foot radius of the site (07/12/10); (E-Mail) Meetings and Agendas – Redevelopment
Agency (07/21/10).
Department Approval:
Sol Blumenfeld: (07/14/10)
Agency General Counsel Approval:
Murray Kane: (07/22/10)
Chief Financial Officer Approval:
Jeff Muir (by N. Kimball) (07/22/10)
Executive Director Approval:
P. Lamont Ewell (07/22/10)
RECOMMENDATION:
Staff recommends the Redevelopment Agency Board (Agency Board) approve an
Affordable Housing Agreement with 4043 Irving Place Investors, LLC. (Developer) to
provide approximately $6 million in funding for the creation of nine moderate and
three low income housing units at 4043 Irving Place (Property).
BACKGROUND:
In 2008, the Agency Board adopted a Comprehensive Housing Strategy (CHS) that
outlines the allocation of Housing Set Aside Funds to satisfy the requirements of the
Regional Housing Needs Assessment (RHNA), State Housing Element Law and
California’s Community Redevelopment Law. The CHS is based on the concept of
providing mixed-income, low-density, scattered site affordable housing
developments.
On December 15, 2008, the City Council voted to allow construction of a mixed-use
project with 28 residential units, one 1,403 square foot commercial unit and 66
subterranean parking spaces on the Property. The building height was limited to 45
feet. At that same meeting, the City Council, as lead agency, made certain findings
and adopted a Mitigated Negative Declaration and Mitigation Monitoring program for
the project. The proposed Agreement does not change the approved plans for the
ATTACHMENT 1
1 City of Culver City, California
Agenda Item Report
project (including, but not limited to, number of units, parking spaces, building height,
building envelope, and setbacks).
In early 2010, the Developer requested that the Agency Board consider participating
in the development by creating affordable housing units within the project. The
Agency Board’s participation would restrict 12 of the 28 housing units to income
eligible tenants. The remaining 16 units would remain market rate units.
DISCUSSION:
If the Agency Board were to approve 12 affordable units, the units would be
comprised of 9 moderate income units (e.g., $67,000 maximum annual income,
based upon 2010 limits for a three-person household) and 3 low income units (e.g.,
$59,650 maximum annual income, based upon 2010 limits for a three-person
household). The 9 moderate units would be comprised of 5 one bedroom and 4 two
bedroom units and the 3 low income units would be comprised of 1 one bedroom
and 2 two bedroom units. In consideration for Agency assistance, the affordable
units would be subject to covenants restricting rents to the maximum allowable
under Community Redevelopment Law for Los Angeles County based upon limits
published by the California Department of Housing and Community Development
(HCD).
The total amount of assistance required is approximately $6 million. Assistance is
necessary due to the existence of both a Feasibility and Affordability gap. The
Affordability Gap (approx. $2.6 million) results due to the property owner discounting
the rents for the 12 affordable units and the Feasibility Gap (approx. $3.4 million)
results from the property owner foregoing the potential to convert the units to
condominiums during the 55-year covenant period. The Agency’s financial analyst,
Keyser Marston Associates (“KMA”), has reviewed the property owner’s proposal
and believes the amount of assistance to be accurate.
The proposed deal points are as follows:
1. The units would be secured for 55 years via income and affordability covenants.
The covenants will be superior to any third party financing including first trust
deeds so that it will not be eliminated in the event of a default.
2. The property would not be transferrable without permission from the Agency
Executive Director, based upon the proposed transferee’s qualifications, financial
capability and experience.
3. The Affordability Gap would be funded in the form of a $2,626,000 grant or
forgivable loan and is conditioned on recordation of Affordable Covenants.
4. The Feasibility Gap would be funded in the form of a $3,366,000 loan with a
1.5% interest rate (payable from 25% of the net cash flow generated by the
project each year). The Agency loan shall be subordinated to any construction
and permanent loans.
ATTACHMENT 1
2 City of Culver City, California
Agenda Item Report
5. The loan would be secured by a subordinate trust deed on the property, and
other security documents.
6. Agency funds would be deposited in an escrow account and distributed
proportionally with the construction loan in accordance with an Intercreditor
Agreement.
7. Change orders that alter the predetermined size, layout, appliances, fixtures and
finishes of the affordable units will not be permitted during the construction
process without Agency approval. The Agency will receive 50 percent of any
cost savings that occur during construction, to be applied toward repayment of
the Agency Loan.
8. The Agency would receive 50 percent of any revenues generated through the
sale or a cash-out refinancing of the Property. The maximum loan-to-value ratio
at the time the property is refinanced and net revenues are generated is 75
percent, unless the Agency Executive Director agrees otherwise.
9. The Developer will be required to reimburse the Agency up to $75,000 (subject to
cost verification) in the event of agreement termination prior to the closing of
construction financing.
10. Construction is scheduled to begin in October 2011 and conclude in April 2013.
11. The Developer will be obligated to give priority in renting the affordable units to
three groups, (i) first, persons who have been displaced by activities of the City
or the Agency, (ii) second, employees of the City and the Culver City Unified
School District, and (iii) third, persons on the Agency’s Rental Assistance
Program Waiting List. The priority to be given to employees of the City and the
School District will promote the public welfare by helping to assure that City and
School District employees have adequate opportunities to live in the community
they serve.
12. The Agency will monitor the project to assure that the Developer is complying
with the rent and income restrictions on the affordable units and with the
approved Management Plan and Maintenance Program. The Developer will pay
a $5,000 annual monitoring fee to the Agency to help offset the Agency’s costs in
this regard.
FISCAL ANALYSIS:
The approximate $6 million in proposed financial assistance equates to $499,000
per affordable unit. Assuming an average unit size of 1,200 square feet, this
equates to a per square foot cost of $416. This amount is in an affordable unit cost
range that is consistent with what Santa Monica ($460 per square foot) expends on
affordable units and what the Agency Board will likely spend on the Globe Avenue
project ($433 per square foot).
The financial assistance will be funded from the Low/Moderate Income Housing
Fund (LMIHF), which has an available appropriable balance of approximately $16
million. The available appropriable balance is the amount available after making the
$11 million loan to the Redevelopment Agency to pay their FY 2009-10 SERAF
ATTACHMENT 1
3 City of Culver City, California
Agenda Item Report
obligation. Should the Agency Board approve the requested financial assistance,
the available appropriable balance would decrease to approximately $10 million,
then increase incrementally over the next five years as the SERAF loan is repaid to
the LMIHF.
ATTACHMENTS:
1. Draft Affordable Housing Agreement
2. Correspondence
3. Mitigated Negative Declaration and Mitigation Monitoring Program
MOTION:
That the Agency Board:
1. Approve and adopt the Mitigated Negative Declaration and Mitigation
Monitoring Program for the project, in the form previously adopted by the City
Council; and,
2. Approve a Budget Amendment appropriating $6 million from the
Low/Moderate Income Housing Fund pursuant to the Affordable Housing
Agreement; and,
3. Approve an Affordable Housing Agreement with 4043 Irving Place Investors,
LLC. to create nine Moderate and three Low Income affordable housing units
at 4043 Irving Place; and,
4. Authorize the Agency General Counsel to review/prepare the necessary
documents; and,
5. Authorize the Executive Director to execute such documents on behalf of the
Agency.
ATTACHMENT 1
4ATTACHMENT 2
5ATTACHMENT 2
6ATTACHMENT 2
7ATTACHMENT 3
8ATTACHMENT 3
9ATTACHMENT 3
10ATTACHMENT 3
11ATTACHMENT 3
12ATTACHMENT 3
13ATTACHMENT 3
14ATTACHMENT 3
15ATTACHMENT 3
16ATTACHMENT 3
17TABLE 1
SUMMARY TABLE
28 UNITS - MARKET RENTS REDUCED BY $1,000 / MONTH
4043 IRVING APARTMENT PROJECT
CULVER CITY, CALIFORNIA
28 Market Rate
Units
9 Moderate + 3
Low Income Units
I. Land Assemblage Costs $2,923,000 $2,923,000
II. Construction Costs
Direct Costs $8,188,000 $8,188,000
Indirect Costs 1,653,000 1,652,000
Financing Costs 851,000 826,000
Total Construction Costs $10,692,000 $10,666,000
III. Total Development Cost $13,615,000 $13,589,000
I. Revenue
Residential $817,000 $679,700
Commercial 50,500 50,500
Total Revenue $867,500 $730,200
(Less) Vacancy & Collection Allow. (43,400) (36,500)
Effective Gross Income $824,100 $693,700
II. Operating Expenses
Residential
General Expenses $117,600 $117,600
Management 38,800 32,300
Property Tax Expenses 96,000 76,800
Commercial 2,600 2,600
Total Operating Expenses ($255,000) ($229,300)
III. Net Operating Income $569,100 $464,400
I. Supportable Private Investment $8,130,000 $6,634,000
II. Total Development Cost $13,615,000 $13,589,000
III. Total Gap $5,485,000 $6,955,000
Feasibility Gap $5,485,000 $5,485,000
Affordability Gap N.A. $1,470,000
IV. Gap Per Affordale Unit
Total Gap $580,000
Affordability Gap $123,000
Development Costs
Net Operating Income
Financial Gap Calculations
Prepared by: Keyser Marston Associates, Inc.
File Name: Irving_8_2_10 - $1,000.xls; Alt Sum
ATTACHMENT 4
18TABLE 2
RENT COMPARISONS
28 UNITS - MARKET RENTS REDUCED BY $1,000 / MONTH
4043 IRVING APARTMENT PROJECT
CULVER CITY, CALIFORNIA
1-Bdrm @ 964
Square Feet
2-Bdrm @ 1,269
Square Feet
I. Market Rent vs Moderate Income Rent
Market Rent $1,835|1010|$2,516|1010|Moderate Income Rent 1,313 1,468
Difference $522 $1,048
II. Market Rent vs Low Income Rent
Market Rent $1,835|1010|$2,516|1010|Low Income Rent 692 770
Difference $1,144 $1,747|101010|Unit Type
The rent equates to $1.90 / square foot of living area.
The rent equates to $1.98 / square foot of living area.
Prepared by: Keyser Marston Associates, Inc.
File Name: Irving_8_2_10 - $1,000.xls; Rent Sum
ATTACHMENT 4
19CULVER CITY, CALIFORNIA
APPENDIX A
PRO FORMA ANALYSIS
28 MARKET RATE APARTMENT UNITS - RENTS REDUCED BY $1,000 / MONTH
4043 IRVING APARTMENT PROJECT
Prepared by: Keyser Marston Associates, Inc.
File Name: Irving_8_2_10 - $1,000.xls; Mkt Pf Sum Page 1 of 4
ATTACHMENT 4
20APPENDIX A - TABLE 1
ESTIMATED DEVELOPMENT COSTS
28 MARKET RATE APARTMENT UNITS - RENTS REDUCED BY $1,000 / MONTH
4043 IRVING APARTMENT PROJECT
CULVER CITY, CALIFORNIA
I. Land Assemblage Costs |1010|24,014 Sf of Land $122 /Sf of Land $2,923,000
II. Direct Costs |1010|34,769 Sf of GLA $8,188,000
III. Indirect Costs |1010|20.2% Direct Costs $1,653,000
IV. Financing Costs |1010|10.4% Direct Costs $851,000
V. Total Construction Cost 28 Units $382,000 /Unit $10,692,000
Total Development Cost 28 Units $486,000 /Unit $13,615,000|1010101010|Costs include architecture, engineering & consulting; public permits and fees; taxes, legal and accounting; marketing and
leasing; Developer Fee; and a soft cost contingency allowance.
Consists of $3.2 million acquisition costs; minus $577,000 purchase price reduction; plus $300,000 in sunk predevelopment
costs.
Costs include on-site improvements, parking, building, tenant improvements, contractors' costs and a hard cost contingency
allowance.
Includes construction period interest, loan origination fees and a contribution to a capital reserve account.
Prepared by: Keyser Marston Associates, Inc.
File Name: Irving_8_2_10 - $1,000.xls; Mkt Pf Sum Page 2 of 4
ATTACHMENT 4
21APPENDIX A - TABLE 2
STABILIZED NET OPERATING INCOME
28 MARKET RATE APARTMENT UNITS - RENTS REDUCED BY $1,000 / MONTH
4043 IRVING APARTMENT PROJECT
CULVER CITY, CALIFORNIA
I. Residential Rental Income |1010|1-Bdrm @ 964 Square Feet 8 Units @ $1,835 /Month $176,200
2-Bdrm @ 1,269 Square Feet 13 Units @ $2,516 /Month 392,500
2-Bdrm + Loft @ 1,554 Square Feet 4 Units @ $2,885 /Month 138,500
3-Bdrm @ 1,448 Square Feet 3 Units @ $2,910 /Month 104,800
Laundry/Miscellaneous Income 28 Units @ $15 /Month 5,000
Gross Income $817,000
(Less) Vacancy & Collection Allow. 5.0% Gross Income (40,900)
Residential Effective Gross Income $776,100
II. Commercial Rental Income
Rental Income 1,403 /Sf of GLA $3.00 /Sf $50,500
(Less) Vacancy & Collection Allow. 5.0% Gross Income (2,500)
Commercial Effective Gross Income $48,000
III. Operating Expenses
Residential
General Operating Expenses 28 Units @ $4,000 /Unit $112,000
Property Management 5% Residential Effective Gross Income 38,800
Property Taxes |1010|28 Units @ $3,429 /Unit 96,000
Reserves Deposits 28 Units @ $200 /Unit 5,600
Commercial
Management 5% Commercial Effective Gross Income 2,400
Reserve for Capital Repairs 1,403 /Sf of GLA $0.15 /Sf 200
Total Operating Expenses 28 Units @ ($7,629) /Unit ($255,000)
IV. Net Operating Income $569,100|101010|Based on a 6% capitalization rate and a 1.1% property tax rate.
Based on Developer estimates -$1,000.00 per month. Rents range from $1.36 to $2.01/Sf of GLA.
Prepared by: Keyser Marston Associates, Inc.
File Name: Irving_8_2_10 - $1,000.xls; Mkt Pf Sum Page 3 of 4
ATTACHMENT 4
22APPENDIX A - TABLE 3
FEASIBILITY GAP CALCULATION
28 MARKET RATE APARTMENT UNITS - RENTS REDUCED BY $1,000 / MONTH
4043 IRVING APARTMENT PROJECT
CULVER CITY, CALIFORNIA
I. Supportable Private Investment
Net Operating Income $569,100
Threshold Return on Cost 7.0%
Total Supportable Private Investment $8,130,000
II. Total Development Cost $13,615,000
III. Feasibility Gap 28 Units ($196,000) /Unit ($5,485,000)
IV. Actual Return on Cost
Net Operating Income $569,100
Total Development Cost $13,615,000
Actual Return on Cost 4.2%
See APPENDIX A - TABLE 2
See APPENDIX A - TABLE 1
See APPENDIX A - TABLE 2
See APPENDIX A - TABLE 1
Prepared by: Keyser Marston Associates, Inc.
File Name: Irving_8_2_10 - $1,000.xls; Mkt Pf Sum Page 4 of 4
ATTACHMENT 4
23CULVER CITY, CALIFORNIA
APPENDIX B
PRO FORMA ANALYSIS
16 MKT RATE; 9 MOD INCOME; & 3 LOW INC APT UNITS - RENTS REDUCED BY $1,000 / MONTH
4043 IRVING APARTMENT PROJECT
Prepared by: Keyser Marston Associates, Inc.
File Name: Irving_8_2_10 - $1,000.xls; Aff Pf Sum Page 1 of 4
ATTACHMENT 4
24APPENDIX B - TABLE 1
ESTIMATED DEVELOPMENT COSTS
16 MKT RATE; 9 MOD INCOME; & 3 LOW INC APT UNITS - RENTS REDUCED BY $1,000 / MONTH
4043 IRVING APARTMENT PROJECT
CULVER CITY, CALIFORNIA
I. Land Assemblage Costs |1010|24,014 Sf of Land $122 /Sf of Land $2,923,000
II. Direct Costs |1010|34,769 Sf of GLA $235 /Sf $8,188,000
III. Indirect Costs |1010|20.2% Direct Costs $1,652,000
IV. Financing Costs |1010|10.1% Direct Costs $826,000
V. Total Construction Cost 28 Units $381,000 /Unit $10,666,000
Total Development Cost 28 Units $485,000 /Unit $13,589,000|1010101010|Consists of $3.2 million acquisition costs; minus $577,000 purchase price reduction; plus $300,000 in sunk predevelopment
costs.
Costs include on-site improvements, parking, building, tenant improvements, contractors' costs and a hard cost contingency
allowance.
Includes construction period interest, loan origination fees and a contribution to a capital reserve account.
Costs include architecture, engineering & consulting; public permits and fees; taxes, legal and accounting; marketing and
leasing; Developer Fee; and a soft cost contingency allowance.
Prepared by: Keyser Marston Associates, Inc.
File Name: Irving_8_2_10 - $1,000.xls; Aff Pf Sum Page 2 of 4
ATTACHMENT 4
25APPENDIX B - TABLE 2
STABILIZED NET OPERATING INCOME
16 MKT RATE; 9 MOD INCOME; & 3 LOW INC APT UNITS - RENTS REDUCED BY $1,000 / MONTH
4043 IRVING APARTMENT PROJECT
CULVER CITY, CALIFORNIA
I. Residential Rental Income |1010|Market
1-Bdrm @ 964 Square Feet 2 Units @ $1,835 /Month 44,000
2-Bdrm @ 1,269 Square Feet 7 Units @ $2,516 /Month 211,300
2-Bdrm + Loft @ 1,554 Square Feet 4 Units @ $2,885 /Month 138,500
3-Bdrm @ 1,448 Square Feet 3 Units @ $2,910 /Month 104,800
Moderate Income
1-Bdrm @ 964 Square Feet 5 Units @ $1,313 /Month 78,800
2-Bdrm @ 1,269 Square Feet 4 Units @ $1,468 /Month 70,500
Low Income
1-Bdrm @ 964 Square Feet 1 Unit @ $692 /Month 8,300
2-Bdrm @ 1,269 Square Feet 2 Units @ $770 /Month 18,500
Laundry/Miscellaneous Income 28 Units @ $15 /Month 5,000
Gross Income $679,700
(Less) Vacancy & Collection Allow. 5.0% Gross Income (34,000)
Residential Effective Gross Income $645,700
II. Commercial Rental Income
Rental Income 1,403 /Sf of GLA $3.00 /Sf $50,500
(Less) Vacancy & Collection Allow. 5.0% Gross Income (2,500)
Commercial Effective Gross Income $48,000
III. Operating Expenses
Residential
General Operating Expenses 28 Units @ $4,000 /Unit $112,000
Property Management 5% Residential Effective Gross Income 32,300
Property Taxes |1010|28 Units @ $2,743 /Unit 76,800
Reserves Deposits 28 Units @ $200 /Unit 5,600
Commercial
Management 5% Commercial Effective Gross Income 2,400
Reserve for Capital Repairs 1,403 /Sf of GLA $0.15 /Sf 200
Total Operating Expenses 28 Units @ ($6,943) /Unit ($229,300)
IV. Net Operating Income $464,400|101010|Based on a 6% capitalization rate and a 1.1% property tax rate.
Market rate rents based on Developer estimates - $1,000/month. Rents range from $1.36 to $2.01/Sf of GLA. Income
restricted rents based on the calculation methodology defined in California Health & Safety Code Section 50053. Monthly
utilities allowances set at: Studio @ 633 Square Feet - $39; 1-Bdrm @ 964 Square Feet - $54; and 2-Bdrm @ 1,269 Square
Feet - $69.
Prepared by: Keyser Marston Associates, Inc.
File Name: Irving_8_2_10 - $1,000.xls; Aff Pf Sum Page 3 of 4
ATTACHMENT 4
26APPENDIX B - TABLE 3
FINANCIAL GAP CALCULATIONS
16 MKT RATE; 9 MOD INCOME; & 3 LOW INC APT UNITS - RENTS REDUCED BY $1,000 / MONTH
4043 IRVING APARTMENT PROJECT
CULVER CITY, CALIFORNIA
I. Supportable Private Investment
Net Operating Income $464,400
Threshold Return on Cost 7.0%
Total Supportable Private Investment $6,634,000
II. Total Development Cost $13,589,000
III. Total Financial Gap 12 Aff Units ($580,000) /Unit ($6,955,000)
Feasibility Gap ($5,485,000)
Affordability Gap 12 Aff Units ($123,000) /Unit ($1,470,000)
See APPENDIX B - TABLE 2
See APPENDIX B - TABLE 1
Prepared by: Keyser Marston Associates, Inc.
File Name: Irving_8_2_10 - $1,000.xls; Aff Pf Sum Page 4 of 4
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33From: Mitsanas, George [mailto:gmitsanas@newmarkrealtycapital.com]
Sent: Wednesday, August 04, 2010 11:05 AM
To: Tipton, Todd; Blumenfeld, Sol
Cc: Sal Gonzales
Subject: 4043 - per your request
Dear Todd,
Per your request here is a summary of the information I have provided you during the past several months.
1) Ownership of over 750 residential units located in California, Idaho and Washington. Own retail, office, industrial and hotel properties.
2) Many different projects where we have had project based or tenant based affordable housing components
3) Own the management company for my southern California holdings. My operations manager has extensive affordable housing
management experience.
4) Experienced in selecting and overseeing third party management companies.
5) Never defaulted on a loan. No BK, etc. Strong banking references.
6) Banking and lending relationships include Wells Fargo, Citibank, Chase, Deutsche Bank, Fannie Mae, Freddie Mac, 1
st
Century Bank, Bay
Cities Bank and Midland.
7) On a professional note, have been a commercial mortgage (Investment) banker for about 21 years. Essentially been with the same group
of bankers throughout this entire period. We have capitalized billions of dollars of multi-family projects throughout the nation but
mostly here on the west coast. Have dealt with a number of redevelopment agencies (or equivalent). My resume posted on our website
is below.
8) George H. Mitsanas, a Principal of Newmark Realty Capital, Inc., is a founder of Newmark’s Southern California operations. Previously,
George was a Senior Vice President and Loan Officer with Churchill Mortgage Corporation for fifteen years; a C.P.A. at Deloitte & Touché;
and licensed real estate broker. B.S. in Accounting from the University of Southern California; Graduate work at the University of
California, Los Angeles. George has arranged well over $4BB in income property investments which include fixed & floating rate debt;
joint ventures; mezzanine debt; participating debt; forward loan commitments; institutional sales and loans which convert from secured
to unsecured obligations. Correspondent lending / investment placement & servicing experience includes a wide variety of capital
sources like ING, TIAA, Allstate Life Insurance Company, State Farm Life Insurance Company, AIG, Advantus, Deutsche Bank, CIBC, US
Bank, Morgan Stanley, governmental apartment agencies and PNC / Midland. Property types include major class A office complexes,
luxury hotels, all classes of retail including regional malls, credit lease transactions, industrial and multi-family. Client base includes, REITS,
institutional funds, private developers and investors. George is a member of the TIAA's correspondent counsel, a collection of top
producers from around the country. During the past fifteen years, George has continuously been one of the nation’s leading production
officers with regard to fee generation, loan volume and deal structures. Individual deal sizes have ranged between $1,000,000 and in
excess of $275,000,000.
As you know, letters of recommendation were provided to you several weeks ago. Please let me know if you need additional information.
GEORGE MITSANAS I PRINCIPAL
Newmark Realty Capital, Inc.
6060 CENTER DRIVE, SUITE 800
LOS ANGELES, CA 90045
310.846.5299 DIRECT
310.846.5300 MAIN
310.846.5310 FAX
gmitsanas@e-newmark.com
www.e-newmark.com
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67
1008007.doc; CC:KHH:gbd
11410.004/094
MEMORANDUM
To: Sol Blumenfeld, Community Development Director
City of Culver City
From: Kathleen Head
Date: August 5, 2010
Subject: 4043 Irving Agenda Item: Response to Public Comments
At your request, Keyser Marston Associates, Inc. (KMA) reviewed correspondence
regarding the 4043 Irving agenda item submitted by Johanna Gullick on August 3
rd
. The
purpose of this memorandum is to respond to the financial issues presented in Ms.
Gullick’s letter.
The letter identifies five issues in support of the assertion that the proposed contribution
to the project of $6 million in Property Tax Increment Housing Set-Aside (Set-Aside)
funds is not a good business decision for the Culver City Redevelopment Agency
(Agency). The identified issues and the KMA responses follows:
ISSUE #1
“The proposed subsidy of $500,000 per unit for the project is 2-1/2 times larger than our
neighboring cities invest per unit in their affordable housing developments.”
In support of this point, the letter cites five projects in West Hollywood, Santa Monica
and Marina del Rey that have subsidies ranging from $79,917 to $318,174 per
affordable unit. Factors that should be considered in evaluating this issue are:
1. The Sierra Bonita project in West Hollywood was actually provided with
City/Agency assistance totaling approximately $231,000 per unit, rather than the
$79,917 per unit identified in Ms. Gullick’s chart. Ms. Gullick was only aware of
one of the funding sources deployed by the City/Agency for this project.
ATTACHMENT 9
68To: Sol Blumenfeld, City of Culver City August 5, 2010
Subject: 4043 Irving Agenda Item: Response to Public Comments Page 2
1008007.doc; CC:KHH:gbd
11410.004/094
2. The City/Agency assistance package for the Hayworth House project in West
Hollywood equals approximately $215,000 per unit as shown in Ms. Gullick’s
chart. However, this project is the acquisition and rehabilitation of an existing
apartment project rather new construction. Also, the project consists almost
exclusively of one-bedroom units.
3. The two Santa Monica examples have assistance packages of $166,000 and
$318,000 per unit. It should be noted that the City of Santa Monica has an active
affordable housing program, and that these two projects represent a small
fraction of the City’s activities. The City’s Housing Trust Fund Guidelines impose
the following assistance parameters on new construction projects: $393,000 per
unit for 0-1 bedroom units; and $414,000 per unit for 2+ bedroom units.
4. The Marina del Rey project identified on the chart includes a density bonus in
addition to the identified assistance amount. The density bonus increased the
allowable project size from 78 units to the currently proposed 124 units.
The proposed assistance package for the 4043 Irving project equals approximately $402
per square foot of building area. Comparatively, the assistance packages for the two
West Hollywood projects range from approximately $330 to $372 per square foot, and
the assistance packages allowed by the Santa Monica Housing Trust Fund guidelines
translate into costs of $410 to $560 per square foot.|1010|
ISSUE #2
“The city’s investment of $6 million does not benefit from any leverage.”
The five example projects described in Ms. Gullick’s letter each include Low Income
Housing Tax Credits (Tax Credits) as a major funding source. Tax Credits are awarded
in an intensely competitive process by the State of California. To effectively compete for
these funds, projects must be comprised of 100% extremely low, very-low and low
income units.
The Culver City affordable housing strategy focuses on dispersing affordable units
throughout the community, rather than concentrating the units in 100% affordable
projects. This strategy achieves the goal of integrating affordable units into market rate
projects, but it renders projects uncompetitive for outside public assistance sources.
|1010| The Santa Monica estimates are based on 0-1 bedroom units at an average size of 700 square
feet, and 2+ bedroom units at an average size of 1,000 square feet.
ATTACHMENT 9
69To: Sol Blumenfeld, City of Culver City August 5, 2010
Subject: 4043 Irving Agenda Item: Response to Public Comments Page 3
1008007.doc; CC:KHH:gbd
11410.004/094
KMA works with many redevelopment agencies that focus on maximizing the leverage of
their local funds. However, KMA also works with several redevelopment agencies that
have chosen to make the dispersal of affordable units their primary objective. For
example, the Burbank Redevelopment Agency has contracted with the Burbank Housing
Corporation (BHC) to create over 230 affordable housing units with the use of no outside
leveraging sources. The BHC projects have received numerous awards, and their
business model is being explored by several other cities in California.
ISSUE #3
“The project will subsidize rents for people who don’t need the subsidy.”
The Regional Housing Needs Assessment (RHNA) for Culver City prepared by the
Southern California Association of Governments (SCAG) for the period between 2006 –
2014 establishes the unmet need for 294 affordable housing units. The unmet need is
broken down as follows:
Extremely Low Income 65
Very Low Income 64
Low Income 80
Moderate Income 85
Total 294
As can be seen in the preceding table, the unmet need for Low and Moderate income
units actually represents the largest categories in the group. The provision of nine
Moderate income units and three Low income units will assist the City of Culver City in
defraying their outstanding RHNA obligations.
ISSUE #4
“The developer does not have experience in developing nor managing deed restricted
affordable housing units.”
KMA does not have information on the experience the development team has in
constructing and managing affordable housing projects.
ATTACHMENT 9
70To: Sol Blumenfeld, City of Culver City August 5, 2010
Subject: 4043 Irving Agenda Item: Response to Public Comments Page 4
1008007.doc; CC:KHH:gbd
11410.004/094
ISSUE #5
“The City has not commissioned independent 3
rd
party reports such as an appraisal and
market study to validate the developer’s asserted operating costs and monthly market
rents of: $2,835 for a 1 bedroom $3885 for a two bedroom and $3,910 for a three
bedroom…”
KMA is an independent consultant that was engaged by the Agency to evaluate the
developer’s pro forma. As a part of that analysis, KMA reviewed the rent and operating
expense information provided by the developer, and then independently prepared a pro
forma analysis for the project. The pro forma analysis prepared by KMA used estimates
provided by the developer for the categories in which the developer’s estimates and
projections fell within the range of current market parameters.
It is clear that the projected rents for the 4043 Irving project are significantly higher than
the average rents being achieved for existing units throughout Culver City. This should
be expected as a significant premium should be achievable for new units in downtown
Culver City. As discussed in the staff report for this agenda Item, given the lack of new
rental development in Culver City it is difficult to identify directly comparable projects to
test the market rents for the proposed project. As such, it was necessary to draw
information from recently constructed apartment projects in Culver City, Palms,
Glencoe/Redwood and Playa Vista. The data derived from this survey indicate that
rents in the range projected for the 4043 Irving project are being achieved within the
market area.
As a point of reference, Ms. Gullick’s rent list does not include the 13 2-bedroom units
that carry projected rents of $3,516 per month. These units represent approximately half
of the units in the project.
Ms. Gullick’s letter asserts that optimistic rent assumptiona place the Agency at risk of
being required to continuously bail out this project. KMA takes exception to this
contention for the following reasons:
1. The income and affordability restrictions proposed to be imposed on the project
represent the senior lien on the property. If, for any reason, the project is
foreclosed upon, the lender and any subsequent purchaser will be subject to the
income and affordability covenants. This eliminates the need for the Agency to
“bail out” the project if it should fall into financial hardship.
ATTACHMENT 9
71To: Sol Blumenfeld, City of Culver City August 5, 2010
Subject: 4043 Irving Agenda Item: Response to Public Comments Page 5
1008007.doc; CC:KHH:gbd
11410.004/094
2. The lender that finances the project will establish the achievable market rents as
part of the underwriting process for the loan. If the lender determines that the
developer’s projections are overly optimistic, the lender will reduce the amount of
the loan that will be approved for the project. The project will not go forward if
the available private financing, combined with the $6 million in Agency
assistance, is insufficient to fund the development costs. In that case, no Agency
funds will be drawn down.
3. If the lender accepts the developer’s rents, and the actual rents do not meet the
projections, insufficient cash flow could be available to make debt service
payments. Clearly, the developer could request additional Agency assistance to
resolve the problem, but since the Agency’s income and affordability covenants
would not be at risk, there would be no financial reason for the Agency to grant
this request. This would leave the developer in the position of needing to
increase his equity contribution, or in the worst case scenario, to allow the project
to be foreclosed upon.
ATTACHMENT 9
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