CITY OF TALLAHASSEE
CITY COMMISSION AGENDA ITEM
ACTION REQUESTED ON: July 1, 2009
SUBJECT/TITLE: Discussion of Loan From the Affordable Housing Trust Fund to Lutheran Social Services for Magnolia Acres, an Affordable Housing Project
TARGET ISSUE: Affordable Housing

STATEMENT OF ISSUE

For the last four years the City has been working with Lutheran Social Services of North Florida, Inc. (LLSNF) to assist in the development of an affordable housing project for disabled persons. There have been a number of challenges in securing the site for this development project. In 2008, the City provided a $125,000 grant from the affordable Housing Trust Fund to assist LLSNF in acquiring a 3.4-acre site on Balkin Rd for this project. LLSNF has submitted a loan request for a $446,666 from the Affordable Housing Trust Fund to allow them to complete construction of Phase I and II of the project, which will provide 27 units of affordable housing. The construction is currently underway and, without the requested loan, LLSNF will be forced to stop construction while it seeks other sources of financing. The requested loan terms call for the funds to be provided at a 0% interest rate, with payments for the first two years deferred. They are requesting the loan payments be structured using a 30-year amortization schedule with a balloon payment for the remaining loan balance in Year 10. There is currently a balance of $983,224 available for programming in the Affordable Housing Trust Fund.

RECOMMENDED ACTION

Approve Option 1: Approve a $446,666 loan from the City Affordable Housing Trust Fund to Lutheran Social Services of North Florida, Inc. for the completion of Phase I and II of the Magnolia Acres Project, with loan terms as provided in this agenda item.

FISCAL IMPACT

The current uncommitted fund balance in the Affordable Housing Trust Fund is $983,224, which is sufficient to fund this request. The Office of Budget and Policy has reviewed and concurs with this agenda item.

Thomas H. Lewis, Director, Economic and Community Development

Anita Favors Thompson, City Manager

For information, please contact: Michael Parker, Assistant Director, 891-8457

SUPPLEMENTAL MATERIAL/ISSUE ANALYSIS
HISTORY/FACTS & ISSUES

Lutheran Social Services of North Florida, Inc. (LSSNF) is a non-profit organization formed in 1989 by the members of Epiphany Lutheran Church. LSSNF offers a variety of services to benefit low-income persons and operates the InnBetween Long-Term Transitional Housing Program. The InnBetween program provides long-term housing to families and individuals who are transitioning from homeless emergency shelters. In 2002 LSSNF successfully renovated a vacant laundry facility into the French Quarter, which is a 10-unit transitional housing development located at 606 West 4th Avenue. LSSNF is a member of the Big Bend Homeless Coalition and provides critical services as part of the area’s “homeless continuum of care”.

On March 9, 2005, the City donated nine (9) vacant lots to LSSNF to facilitate the development of efficiencies, duplex, and triplex units for disabled low-income persons. At that time the City also provided a $250,000 grant using SHIP funds to support the development of the housing. However, a subsequent amendment to the Comprehensive Plan restricted the use of these properties for the construction of single-family homes, and the sites could not be used for the LSSNF project. With the City’s permission, LSSNF made these lots available to other local non-profit organizations for the construction of affordable single-family homes.

On November 22, 2005, the City Commission approved action to donate two City-owned parcels on Dantzler Street for the proposed affordable housing project. These two lots were matched with an adjacent 1.72-acre parcel donated to LSSNF by Mr. Pepper Ghazvini and Premier Construction to provide a 3.4-acre development site. It was later determined that due to floodplain issues associated with the property, it could not accommodate the proposed housing project.

On February 27, 2008, the City Commission approved a $125,000 grant from the Affordable Housing Trust Fund to facilitate the acquisition of a 3.4-acre site on Balkin Road for the proposed affordable housing project. LSSNF used the City grant and a $125,000 grant from the Leon County Housing Finance Authority to acquire the site. To date the City has contributed a total of $375,000 ($250,000 SHIP grant and $125,000 grant from Affordable Housing Trust Fund) to support this project.

There have been several developments since that last action that have impacted this project. First, LSSNF has lost one of the primary funding sources for the affordable housing project. LSSNF had received a funding commitment from the U.S. Department of Housing and Urban Development (HUD) Section 811 Program for $727,200 to support twelve (12) of the units in the proposed project. However, HUD has determined that the new project location does not meet their site requirements and that funding is no longer available for this project. Also, the Balkin Road site has incurred greater site preparation costs than originally anticipated, and there have been revisions in the building code requirements during the course of the project, which have increased the project construction costs.

The project has been divided into three 9-unit phases. Phase I of the project is approximately 80% complete and Phase II is 30% complete. Construction on Phase III has not been initiated. LSSNF has exhausted all of its resources and will be forced to cease construction activity unless it can secure additional financing.

The revised construction estimate for completion of Phases I and II is $2,417,174. LSSNF currently has $1,970,508 in funding available from various public sources. This includes $521,908 in City funding, which represents $375,000 from the previous City housing grants, and $146,908 from infrastructure reimbursements due from the City. The balance of the funding ($1,448,600) is from other public sources. There is a $446,666 gap between the funds available and the estimated construction costs.

LSSNF has requested that the City provide a $446,666 loan from the Affordable Housing Trust fund to the Magnolia Acres Project so that it can complete the construction on Phases I and II. The proposed loan terms call for a no interest loan with an amortization schedule based on a 30-year payback period. They have asked that the loan payments be deferred for the first two years. Their proposal calls for a balloon payment in Year 10 that would pay off the loan balance. Based on this schedule, LSSNF would make annual loan payments of $14,888 to the City in Years 2 through 10 and pay off the remaining $327,559 loan balance in Year 10.

The primary sources of revenue for repayment of the loan would be the net operating income from the Magnolia Acres project and a pledge from LSSNF to use its operating income to cover any shortage. LSSNF has indicated that they will aggressively pursue other grant and financing sources to repay the loan balance, preferably before the ten-year balloon payment requirement. Further, LSSNF has committed to use the equity in the French Quarter project and other property holdings to meet the balloon payment requirements if necessary. LSSNF is also seeking a grant from the Federal Home Loan Bank to complete Phase III for the final nine (9) units.

Staff recommends that the Commission approve the requested loan. While this action will increase the total level of City participation, this project still effectively leverages City funds, with 60% of the project funding coming from non-City sources. Equally important, this project will provide 18 units of special needs affordable housing to address an underserved population in our community.

CHARITABLE CONTRIBUTIONS

N/A

OPTIONS

Option 1: Approve a $446,666 loan from the City Affordable Housing Trust Fund to Lutheran Social Services of North Florida, Inc. for the completion of Phases I and II of the Magnolia Acres Project, with loan terms as provided in this agenda item.

Pros
o Provides for the completion of 18 units of affordable housing for disabled low-income persons.
o The proposed loan will allow LSSNF to access approximately $1,448,600 in other public funding and will effectively leverage City resources.

Cons
o Reduces the available fund balance in the Affordable Housing Trust Fund to $536,558, potentially limiting participation in future affordable housing projects.

Option 2: Deny Lutheran Social Services loan request.

Pro
o Retains current balance of $983,224 in the Affordable Housing Trust Fund for use on other eligible projects.

Con
o Without the loan the project may not be completed and 18 units of affordable housing will not be provided.
o If the project cannot be completed, the funding provided by the other grant sources may be withdrawn, thereby eliminating the opportunity for leveraging of City resources.

ATTACHMENTS/REFERENCES

Attachment 1: Loan Request Letter from Lutheran Social Services
Attachment 2: Site Plan and project description for Magnolia Acres