118-0102015-002 Agenda Item No. 5(d) Meeting of August 4, 2015
MEMORANDUM
TO: Community Investment and Infrastructure Commissioners
FROM: Tiffany Bohee, Executive Director
SUBJECT: Authorizing a Loan Agreement with TB8 Housing Partners, L.P., a California limited partnership in the amount of $16,000,000 for development activities related to the construction of 79 affordable housing units plus one manager's unit at Transbay Block 8 (also known as 250 Fremont Street) and adopting environmental findings pursuant to the California Environmental Quality Act; Transbay Redevelopment Project Area
EXECUTIVE SUMMARY
The Transbay Redevelopment Project Area (the "Project Area") was adopted in 2005 with the purpose of redeveloping 10 acres of property owned by the State of California (the "State-owned parcels") to generate funding for the Transbay Joint Powers Authority ("TJPA") to construct the new Transbay Transit Center (the "TTC") and meet the affordable housing requirements of Assembly Bill 812 ("AB 812") (Cal. Pub. Res. Code § 5027.1(b).). AB 812 is an enforceable obligation which requires the Office of Community Investment and Infrastructure ("OCII"), as the Successor Agency to the former San Francisco Redevelopment Agency ("Former Agency"), to ensure 35% of the new housing units built in the Transbay Project Area are affordable, and occupied by, low- and moderate-income households. OCII is on track to achieve the 35% mandate of affordable housing in the Transbay Project Area.
The Transbay Redevelopment Project Area Implementation Agreement ("Implementation Agreement") is another enforceable obligation that requires OCII to "prepare and sell [certain State-owned parcels that OCII is authorized to acquire] to third parties." (Section 2.1 (a) of the Implementation Agreement on p. 4). On April 15, 2013, the California Department of Finance ("DOF") determined "finally and conclusively" that AB 812 and the Implementation Agreement area enforceable obligations that will not require additional DOF review in the future, although expenditures under these enforceable obligations are subject to DOF review.
On November 20, 2013, pursuant to the Implementation Agreement, the Former Agency issued a Request for Proposals (the "RFP") from development teams including a for-profit developer as well as a non-profit affordable housing developer to design and develop a high-density, mixed- income, mixed-use project on Block 8 in the Project Area. The RFP for Transbay Block 8 set a specific target that 27% of the project be affordable; that specific percentage, when balanced with other 100% affordable blocks in the Project Area, will allow OCII to meet the overall 35% affordability mandate. The RFP assumed that OCII would provide an affordable housing subsidy of $200,000 per unit for the standalone affordable portion of Block 8. On June 17, 2014, after a 118-0102015-002 Page 2 competitive selection process, the Commission authorized the Executive Director to execute an Exclusive Negotiations Agreement ("ENA") for the Development of Block 8 with the development team led by Related California Urban housing, LLC ("Related" or the "Master Developer") as the for-profit developer and Tenderloin Neighborhood Development Corporation ("TNDC") as the affordable non-profit developer, along with Office of Metropolitan Architecture ("OMA") as the lead architect for the tower component of the development and Fougeron Architects ("Fougeron"), a small business enterprise, as the architect for the low-rise buildings (together referred to as the "Development Team").
Based on the ENA, OCII staff negotiated the terms of a disposition and development agreement ("DDA") with Transbay 8 Urban Housing, LLC (a Related entity) and Tenderloin Neighborhood Development Corporation for the sale and development of Block 8. On April 21, 2015, the Commission approved the DDA, which provides for a purchase price of $71,000,000 for the land parcel and allows for the construction of up to 554 residential units comprised of 404 market-rate units and 70 inclusionary below market-rate ("BMR") affordable units in a 550 foot tower, and 80 OCII-funded affordable units, at a per unit OCII subsidy not to exceed $200,000 per unit in two mid-rise, standalone affordable buildings. Also, on April 21, 2015, the Commission approved the Schematic Design of the project. The Development Team has since refined the design and removed 8 market-rate units for a revised total unit count of 546 units. The number of affordable units remains unchanged.
TB8 Housing Partners, L.P. (the "Developer") is now requesting that the OCII Commission authorize a $16,000,000 gap loan for the 80 OCII-funded affordable units (the "Affordable Project"). The Affordable Project is comprised of 39 one-bedroom units, 16 two-bedroom units, 24 three-bedroom units and 1 one-bedroom manager's unit. It includes two rooftop decks, a community room and laundry facilities. Block 8 is adjacent to Transbay Block 6, which includes a market-rate residential tower being constructed by Golub and a mid-rise 70-unit affordable small family project being developed and eventually operated by Mercy Housing on a shared podium. The Transbay Block 7 development, being developed by Mercy Housing as well, also borders Block 8. Currently in predevelopment, the Block 7 project will be a 120-unit affordable . family development.
The source of the requested funds will be Transbay Developer Fees, Transbay Affordable Housing Fees, and Tax Increment funds. On July 17, 2015, the Citywide Affordable Housing Loan Committee ("Loan Committee") recommended approval for this request.
Staff recommends authorizing the Permanent Loan Agreement with TB8 Housing Partners, L.P., a California limited partnership in the amount of $16,000,000 for development activities related to the construction of 79 affordable housing units plus one manager's unit at Transbay Block 8 and adopting environmental findings pursuant to the California Environmental Quality Act; Transbay Redevelopment Project Area
Project Description 118-0102015-002 Page 3
The Transbay Block 8 development includes a tower with market-rate condominiums, market- rate rental apartments, BMR rental apartments and 2 townhouses attached to the tower; one 65- foot tall affordable podium building; and another 85-foot tall affordable podium building with 5 affordable townhouses attached to it. The 80 OCII-sponsored affordable units are located in the two podium buildings and the 5 townhouses that are attached to the 85-foot podium building. The other 70 developer-sponsored affordable units are located in the tower component of Transbay Block 8. Related California is responsible for financing and operating the Affordable Project and TNDC will provide services to the residents.
The tower sits at the corner of First and Folsom Streets, while the two lower podium buildings front a portion of Folsom street and the length of Fremont Street between Folsom and Clementina. The 7 townhouses are all located along the northern edge of the block on Clementina Street. The design team incorporated a midblock alley that diagonally bisects the entire block. This mid-block passage between Folsom and Clementina enables residents and the public to access the block's interior open space. At the podium level the two midrise affordable buildings flank both sides of the mid-block pedestrian pathway. The facades of the podium buildings facing the alley slope back to allow more light and air into the center of the block. (See pages 32 — 45 of Exhibit A for the Block 8 site plan and the Affordable Project floor plans and renderings.)
The Folsom Street side of the Block 8 is lined with retail stores and residential lobbies. Four ground floor retail spaces in the affordable podium buildings, which line much of the street frontage of Fremont and Folsom streets, also face inward towards the pedestrian alley. The commercial spaces are condominiums owned by the Master Developer, who will be responsible for marketing those spaces to retailers. The four commercial spaces within or connected to the affordable buildings measure 415 square feet, 2,065 square feet, 1,990 square feet, and 2,825 square feet respectively.
The Affordable Project includes 39 one-bedroom units, 16 two-bedroom units, 24 three-bedroom units and 1 one-bedroom manager's unit for a total of 80 units. The affordable podium buildings each contain amenities and community spaces from which residents will benefit. Both the 85- foot and 65-foot podium buildings feature rooftop decks. The taller building includes a 1,900 square foot community room, and both the podium buildings and townhouses have dedicated laundry facilities. The residents living in the 80 OCII-sponsored units will also have access to amenities located on the 7th floor of the Block 8 tower. These amenities include a full gym with pilates and yoga studios; a pool; a children's playroom; a library and lounge space.
OCII will retain ownership of the Affordable Project's air rights parcel and, subject to OCII Commission approval expected to be requested in late 2015, will enter into an air rights lease with T8 Housing Partners, L.P., to construct the Affordable Project, consistent with OCII's typical air rights lease terms. T8 Housing Partners, L.P. will own the improvements. Once the it is completed, OCII will seek Oversight Board approval to transfer the loan and air rights lease to the Mayor's Office of Housing and Community Development ("MOHCD") as the Housing Successor Agency under Redevelopment Dissolution Law. 118-0102015-002 Page 4
The Transbay Block 8 development program and schematic design were approved by the Commission in April 2015 and conform to the goals and requirements of the Redevelopment Plan, the Development Controls and Design Guidelines ("DCDG"), and the Transbay Redevelopment Project Area Streetscape and Open Space Concept Plan ("the Streetscape and Open Space Plan").
Background Leading up to this Request
The Transbay Redevelopment Project Area was adopted in 2005 with the purpose of redeveloping 10 acres of property owned by the State of California in order to generate funding for the TJPA to construct the new TTC. The Transbay Redevelopment Project Area Implementation Agreement is an enforceable obligation that requires OCII, as the Successor Agency to the Former Agency, to "prepare and sell [certain State-owned parcels that OCII is authorized to acquire] to third parties."
On November 20, 2013, pursuant to the Implementation Agreement, OCII-issued a RFP to development teams including a for-profit developer as well as a non-profit affordable housing developer to design and develop a high-density, mixed-income, mixed-use project on Block 8 in the Project Area. The RFP sought proposals that included a maximum of 740 residential units for the block, including at least 27% of units affordable to qualified households earning between 50% and 60% of Area Median Income ("AMI"), ground floor retail along Folsom Street, shared open space within the block, and a shared underground parking garage. The RFP also specified the for-profit developer would develop a market-rate residential tower and townhouses on the parcel while the affordable non-profit developer would develop the OCII-subsidized Affordable Project. Development teams were asked to submit qualifications, a basic development concept, and a financial proposal, including fair market purchase price for the land attributable to the market-rate portion of the development and a maximum OCII subsidy of $200,000 per unit for the affordable housing.
On June 17, 2014, after a competitive selection process, the Commission authorized the Executive Director to execute an ENA for the Development of Block 8 with the development team led by Related California Urban housing, LLC as the for-profit developer and Tenderloin Neighborhood Development Corporation as the affordable non-profit developer, along with Office of Metropolitan Architecture as the lead architect for the tower component of the development and Fougeron Architects, a small business enterprise, as the architect for the low- rise buildings.
Based on the ENA, OCII staff negotiated the terms of a disposition and development agreement with Transbay 8 Urban Housing, LLC and Tenderloin Neighborhood Development Corporation for the sale and development of Block 8. The DDA provides for a purchase price of $71,000,000 for the parcel and allows for the construction of up to 554 residential units comprised of 404 market-rate units and 70 inclusionary affordable units in a 550 foot tower, 20 affordable units in an OCII-funded podium building adjacent to the tower, and 60 affordable units in an OCII- funded standalone podium building with abutting townhouses. 118-0102015-002 Page 5
The Development Team has since removed 8 market-rate units from the development program reducing the total unit count of the block site to 546 units. The Master Project is now comprised of 116 market-rate condominiums, 280 market-rate rentals, 70 developer-subsidized below market-rate rentals, the 80-unit Affordable Project and approximately 18,000 square feet of neighborhood serving retail space including a grocery store. The decrease in the total unit count of the Master Project was driven by a variety factors including increasing the building core based on comments provided by the San Francisco Fire Department, market studies indicating a demand for larger units, and refining the location of mechanical, electrical and plumbing ("MEP") systems and structural columns from concept design to schematic design. No affordable units were lost when the Development Team scaled back the unit mix of the Master Project, and they have maintained the required 27% onsite affordable housing requirement for the Master Project even as the development's size and unit count have changed.
Affordable housing projections for the Project Area are on target to achieve the 35% affordable housing requirement. The 70 BMR units in the tower of the Master Project are affordable to families earning up to 40% - 50% AMI, and the 80 units in the Affordable Project are designated for families earning up to 50% of AMI, all contribute towards helping the Project Area meet its affordable housing target.
The Block 8 Schematic Design and DDA were both approved by the Commission on April 21, 2015. Prior to approving the Schematic Design OCII reviewed it to ensure conformance to all of the requirements of the Redevelopment Plan, the Development Controls and the Streetscape and Open Space Plan. The designs were also reviewed by the Transbay Citizens Advisory Committee (the "CAC") at their April 9, 2015 meeting. Consequently, the Development Team has created an attractive project and has responded to all of OCII' s and the CAC's comments and suggested revisions to the design for Block 8.
The DDA outlines certain schedule milestones the Master Project must achieve. Since the proceeds from the Transbay Block 8 land sale are critical to subsidizing the construction of the TTC, the DDA stipulates the land transfer occur no later than October 15, 2015. As such, the Developer intends to place the purchase amount into escrow on October 1, 2015 and it wants to begin construction of the development as soon as possible after closing on the land transfer. They are currently targeting a construction start date in early December 2015.
Transbay 8 Affordable Project Financing Plan and Development Budget
In addition to the OCII subsidy, the Transbay 8 Affordable Project will be financed with low- income housing tax credit equity and tax exempt bonds. The OCII subsidy will be consistent with the DDA and the RFP, which included a maximum subsidy of $200,000 per unit. The sources for the total anticipated OCII subsidy of $16,000,000 will be Transbay Developer Fees, Transbay Affordable Housing Fees, and Tax Increment funds. OCII will not be obligated to increase the per unit subsidy in the event of substantial development cost increases.
Initial construction cost estimates were based upon the schematic design provided by Swinerton Builders using their experience with similar recent projects of this type and size. The Development Team then evaluated this estimate utilizing its internal team of estimators, former 118-0102015-002 Page 6 contractors, architects and engineers, who have experience with current and recent projects similar to Block 8. Hence, the Schematic Design cost estimate data includes a third peer review by the architecture and engineering ("A&E") team through outreach to known subcontractors. During the design development process the A&E consultants and the Development Team conduct on-going cost updates. Additional cost containment is achieved and market volatility mitigated on the larger and more complicated scopes of work through the use of a design-build process whereby the design and construction services of certain systems are contracted by a single entity or subcontractor. In addition to utilizing the design-build process, the Development Team will select subcontractors and a general contractor in accordance with OCII's SBE Guidelines.
As currently reported, the cost estimate for the Affordable Project is comparable to other recent OCII and MOHCD-funded projects, within the acceptable levels for a project of this type and size, and maximizes efficiencies of scale from the Block 8 Master Project. At $463,673 per unit and $257,596 per bedroom the project's current cost estimate averages fall under the hard cost norms of $590,000 per unit and $334,000 per bedroom for the comparable projects. These Master Project hard costs are based on recent pricing estimates and the Affordable Project hard cost budget is determined on a per square foot allocation of the Master Project's cost. The Affordable Project soft costs are approximately 30% less than similar affordable family developments. Any changes to the design that increase cost or other market volatility risk will be borne solely by the Developer. OCII bears no risk of allocating additional funds to the Affordable Project in the event of its budget increasing since our subsidy is capped at $200,000 per unit in accordance with the original RFP and the executed DDA. There will not be any follow-up request for additional OCII funds and this has been included as a condition of the loan.
Marketing and Occupancy Preferences
The Affordable Project will serve households up to 50% AMI as published by MOHCD. Consistent with other Transbay affordable housing projects, occupancy preferences for the units are as follows: 1) OCII Certificate of Preference Holders ("COP") under the Property Owner and Occupant Preference Program; 2) Ellis Act Housing Preference ("EAHP") certificate holders; 3) San Francisco residents or workers; and 4) Members of the general public.
The developer must submit an Early Outreach and Marketing Plan (the "Marketing Plan") to OCII one month after construction commencement and start early outreach within three months of construction commencement. The Borrower may elect to deliver Early Outreach directly, or select a provider from the MOHCD Access to Housing and Rental Readiness preferred provider list. Early Outreach must include comprehensive outreach and marketing services and education, individualized support, group workshops, and peer-support counseling to ensure candidates have the opportunity to apply and secure housing. A list of services includes:
• Outreach and affirmative marketing • Budgeting and Asset Building • Credit counseling • Rental housing counseling including landlord tenant relations 118-0102015-002 Page 7
• Tenant counseling and housing rights • Financial education workshops including eviction prevention curriculum • Rental application assistance and preparation
A template of the Marketing Plan is attached to the Loan Agreement; the Loan Agreement is binding and requires the Borrowers to comply with the Marketing Plan requirements. The Marketing Plan must address how developer intends to market vacant affordable units and ensure the above priority is maintained. The Marketing Plan will be consistent with OCII and MOHCD policies and procedures related to the affordable units, and will include developer's plan to provide assistance to applicants throughout the marketing process. The Marketing Plan requirements will also be included in the future air rights lease, which will come before the Commission for approval at a later date.
Borrower must obtain OCII's approval of reasonable alterations to the Marketing Plan or the Tenant Selection Plan. Borrower must market and rent the units in the manner set forth in the Marketing Plan.
Specifically for COP and EAHP certificate holders, the developer will make available support services staff to provide assistance throughout the application process, as needed, with the goal of maximizing COP and EAHP participation to the extent possible. The developer will ensure that COP and EAHP holders are aware that such assistance is available.
OCII Permanent Funding Request
The Affordable Project is still in its predevelopment period, however, Related and TNDC are requesting OCII's gap funding commitment now in order to apply to TCAC and CDLAC for 4% low-income housing tax credits ("LIHTC") and bond financing. The OCII loan amount for the Affordable Project will total $16,000,000 ($200,000 per unit), and be subject to the Affordable Project air rights lease. It will have a term of 55 years, and staff is currently recommending an interest rate of 3% with authority given to the Director of MOHCD and the Executive Director of OCII to approve a decrease to 0% as part of the final financial plan ("FFP") for the Affordable Project if it requires a lower interest rate to remain compliant with IRS requirements (see page 18 of the attached Loan Evaluation). The loan agreement is attached here as Exhibit B.
The Affordable Project expects to generate $16,709,690 in 4% Low-Income Housing Tax Credit equity. The financing also assumes a $3.8 million permanent loan at a 5.675% interest rate, with a 35-year amortization period. Other sources of financing include a $500,000 Managing General Partner capital contribution from TNDC and accrued interest associated with the OCII Residual Receipts Loan.
The Developer will continue to work with OCII staff and financial advisor to refine the financing for the Affordable Project in a manner which conforms to the DDA and MOHCD Underwriting Guidelines. This FFP will be approved by the OCII Executive Director and MOHCD Director prior to the closing of construction financing for the Affordable Project. As a result, the final sources and uses of funds, operating budget, and multi-year cash flow proforma are subject to 118-0102015-002 Page 8 approval by the OCII Executive Director and MOHCD Executive Director prior to closing. The Affordable Project sources and uses are detailed in the chart below.
Number of Units : 80 Bedroom Count: 144 Square Footage: 91,643
250 Fremont Sources St. OCH Funding $16,000,000 Non- OCH Permanent Sources Perm Tax-Exempt Bond $3,884,157 LP Equity $16,709,690 GP Equity $500,000
Total Sources $37,093,847
Uses Acquisition $50,000 Construction $26,756,158 Construction Contingency $1,337,808 Architecture & Engineering $1,126,595 Survey & Engineering Studies $103,227 Financing Costs $2,121,836 Legal Costs $350,000 Other Soft Costs $2,076,152 Soft Cost Contingency $447,494 Capitalized Operating Reserves $224,577 Lease Up Reserve $0 Construction Management/ Financial Consultant $0 Developer Fee $2,500,000
Total Uses $37,093,847
Compliance with OCII's Contracting Policies
The Developer shall comply with the OCII' s Nondiscrimination policies in regards to: Contracts, Minimum Compensation and Health Care Accountability. They will also work closely with contract compliance staff to comply with the Small Business Enterprise ("SBE") Program on this development. To date, the Developer has achieved 55% SBE participation and 27% San Francisco SBE participation for professional services. Additionally, it is currently achieving 18% Minority Business Enterprise ("MBE") participation and 8% Woman Business Enterprise ("WBE") participation. 118-0102015-002 Page 9
Project Schedule and Next Steps
Staff anticipates returning to the Commission this coming November 2015 for approval of the Air Rights Lease for the Affordable Project.
CALIFORNIA ENVIRONMENTAL QUALITY ACT
On April 20, 2004, the Former Agency Commission adopted Resolution No. 45-2004, certifying the Final Environmental Impact Statement/Environmental Impact Report (the "Final EIS/EIR") for the Transbay Redevelopment Project, and on January 25, 2005 adopted Resolution No. 11- 2005, adopting findings under the California Environmental Quality Act ("CEQA"), a Statement of Overriding Considerations and a Mitigation Monitoring and Reporting Program in connection with the adoption of the Redevelopment Plan. The Board of Supervisors and the Planning Commission adopted similar findings. Because the Final EIS/EIR includes evaluation of the proposed Transbay Terminal, the TJPA also adopted environmental findings. The Final EIS/EIR includes by reference a number of addenda. The addenda include the following:
• Addendum #1 — adopted by the TJPA on June 2, 2006, assessed the additional use of the temporary Transbay Terminal by Greyhound, another transit carrier. • Addendum #2 — adopted by the TJPA on April 19, 2007, assessed modifications of the rail tracks and underground tunnels leading to the new Transit Center. • Addendum #3 — adopted by the TJPA on January 17, 2008, evaluated the addition of 546 Howard Street to the Transit Center. • Addendum #4 — adopted by the TJPA on October 17, 2008, evaluated the configuration, boarding platforms and passenger waiting areas, and bus staging areas of the temporary Terminal, and associated modifications to bus lanes on surrounding streets. • Addendum #5 — adopted by the TJPA on April 9, 2009, evaluated the building design of the new Transit Center. • Addendum #6 — adopted by the TJPA on December 8, 2011, evaluated minor refinements to the proposed bus ramp component of the Transit Center.
In adopting each Addendum, the TJPA determined modifications to the Project would not require subsequent environmental review and would not require major revisions to the Final EIS/EIR.
The Final EIS/EIR is a program EIR under CEQA Guidelines Section 15168 and a redevelopment plan EIR under CEQA Guidelines Section 15180. The Final EIS/EIR is also a project EIR under CEQA Guidelines Section 15161 for certain structures and facilities, including the Temporary Terminal. The Block 6 DDA is an undertaking pursuant to and in furtherance of the Redevelopment Plan in conformance with CEQA Sections 15180 and 15168 (the "Implementing Action"). 118-0102015-002 Page 10
Staff has reviewed the Loan Agreement, the Transbay Block 8 Schematic Design Package, and related actions for the Affordable Project and has considered and reviewed the Final EIS/EIR and addenda and finds this as an Implementing Action and within the scope of the Project analyzed in the Final EIS/EIR and subsequent addenda and no additional environmental review is required pursuant to State CEQA Guidelines Sections 15180 and 15168. The Final EIS/EIR and addenda were distributed to the Commission in advance of the April 16, 2013 Commission Meeting and are available for review at OCII' s offices.
(Originated by Benjamin Brand' Develop ent Specialist)
ny Bohee Executive Director