STATEMENT OF ISSUE
The Tallahassee Lenders’ Consortium (TLC) was formed as an independent non-profit corporation in FY 1994. In addition to administering the City’s down payment assistance program, the Agency has been a successful developer of affordable housing units. TLC was certified as a Community Housing Development Organization (CHDO) in 1997 and began building affordable infill housing for the City in 1998. TLC completed four townhomes on Lake Avenue last year, and the Agency is currently developing four single-family homes on Brewer Street; one is under construction. Additionally, the Agency has recently purchased two lots on Pennlyn off Lonnbladh, using funds from its 2007-2008 CHDO contract with the City. TLC has a contract for construction of a new home on one of those lots and will begin construction once the financing package has been secured. Construction on the other home will not begin until it is under contract.
TLC is requesting zero percent construction financing in the form of a revolving line of credit (LOC) in the amount of $220,000 from the Affordable Housing Trust Fund which would: 1) reduce the cost of the home by approximately $4,400 compared to bank financing at 6.5%; 2) provide a reliable future source of construction financing that is rate-protected for the second lot and other future development; 3) allow TLC the flexibility to respond more quickly to future client needs and the fast-paced demands of the private real estate market; and, 4) ensure that TLC can comply with the Florida Housing Finance Corporation’s Home Ownership Pool (HOP) reservation deadline (180 days). The LOC would have a three-year term, require quarterly reports, and drawn funds would be secured by a mortgage and repaid when a home is sold to a qualified buyer.
RECOMMENDED ACTION
Approve Option 1: Approve a construction LOC for TLC in the amount of $220,000 from the Affordable Housing Trust Fund.
FISCAL IMPACT
As of September 15, 2008, the uncommitted balance in the Affordable Housing Trust Fund is $966,519. The September 30, 2008 balance is not yet available because of year-end close-out activities. The Office of
Budget and Policy has reviewed and concurs with this agenda item.
For information, please contact: Joyce Martinez, Housing, 891-6526.
Thomas H. Lewis, Director, Economic & Community Development
Anita Favors Thompson, City Manager
HISTORY/FACTS & ISSUES
The Tallahassee Lenders’ Consortium (TLC) administers and operates several programs for the City including Homebuyer Education, Down Payment Assistance, Deep Subsidy, as well as being a successful developer of affordable housing units. Currently, TLC receives grant funding from the City’s Community Development Block Grant (CDBG), HOME and State Housing Initiatives Partnership (SHIP) allocations to operate these programs. As a Community Housing Development Organization (CHDO), TLC receives a portion of the City’s HOME funds for the purpose of producing affordable housing.
During the past 10 years, TLC has produced 48 units of affordable housing and continues to find creative solutions in today’s challenging real estate market.
One of TLC’s most recent accomplishments was the successful completion in 2007 of four townhome units on Lake Avenue. In order to produce these affordable units, the City provided a zero interest construction loan in the amount of $447,500. As each unit was sold, a proportionate share of the loan was repaid. All homes have been sold and the loan was repaid in a timely fashion.
The proposed Line of Credit (LOC) will be drawn on only at the time the TLC has a qualified buyer with approved permanent financing under contract and construction is ready to begin. A note and mortgage in favor of the City will be executed and recorded at the time of the construction draw. The draw amount per house will not exceed more than $110,000, which is less than the total development cost for the proposed home. TLC will use deferred developer fees and other TLC construction funds (proceeds from other successful developments) to fill the gap. CHDO funds have been used to acquire the land. The attached proforma shows the estimated costs of development for the two versions (3 bedroom or 4 bedroom).
When the home is completed and the permanent financing is closed, TLC will repay the funds to the City and the City will release the mortgage on the subject property. Then TLC will be able to draw down the repaid funds again when another proposed unit is under contract to a qualified buyer. At that time, the City will take a new mortgage on the property on which the proposed unit will be built. At no time will TLC have more than $220,000 outstanding on this LOC. TLC can redraw on this LOC for future developments under the same terms and conditions until the 3-year term has ended.
The availability of this LOC is beneficial to Tallahassee citizens needing affordable housing in the following ways:
• Cost of building the new homes on Pennlyn can be kept approximately $4,400 lower if TLC can access a zero percent LOC. The estimated savings is demonstrated on the attached proforma.
• Future development can be produced at a similar or larger savings because the LOC can be re-used over a three-year period.
• Having the LOC established and ready for disposal will enable TLC to react to market conditions and be in a position to best serve citizens that need affordable housing and have deadlines on their approved financing. Construction can begin sooner with construction financing already in place.
• Florida Housing Finance Corporation provides additional down payment/principal reduction assistance with their Home Ownership Pool (“HOP”) program but these funds must be used within 180 days of reservation. The LOC will enable TLC to begin and complete construction within this timeframe.
The proposed homes on Pennlyn will be sold to qualified households at or below 80% of area median income and will have an affordability period of at least five years. Qualified buyers will be eligible to receive down payment assistance.
CHARITABLE CONTRIBUTIONS
N/A
OPTIONS
Option 1: Approve a construction LOC for TLC in the amount of $220,000 from the Affordable Housing Trust Fund.
Pro:
• This will reduce the cost of the production of at least two affordable housing units for Tallahassee homebuyers by approximately $4,400 per unit.
• Future affordable housing costs can be reduced by this amount by approving this request.Con:
• The cost of producing these (and future) affordable housing units built by TLC will increase by at least $4,400 per unit. As the market conditions change, this amount is likely to increase.
• This will obligate $220,000 from the Affordable Housing Trust Fund.
Option 2: Do not approve this financing request for TLC and provide staff with alternate policy direction.
Pro:
• $220,000 from the Affordable Housing Trust fund could be used for other projects.Con:
• The cost of producing these (and future) affordable housing units will be increased by at least $4,400 per unit.
ATTACHMENTS/REFERENCES