118-0042019-002 Agenda Item No. 5(c) Meeting of February 19, 2019 MEMORANDUM TO: Community Investment and Infrastructure Commissioners FROM: Nadia Sesay, Executive Director SUBJECT: Authorizing a Ground Lease Agreement and an Amended and Restated Loan Agreement, for an aggregate not to exceed $47,361,690 both with Mercy Housing California 78 L.P., a California limited partnership, for the development of 152 rental units (including one manager’s unit) serving extremely-low to low-income families at Mission Bay South Block 6 West (691 China Basin Street), a project within the scope of the Mission Bay Final Subsequent Environmental Impact Report (“FSEIR”), a Program EIR, and is adequately described in the FSEIR for the purposes of the California Environmental Quality Act; Mission Bay South Redevelopment Project Area EXECUTIVE SUMMARY Mercy Housing California (“Mercy” or “Project Sponsor”), the developer of a 152-unit affordable rental housing project (“Project”) at 691 China Basin Street (Mission Bay South London N. Breed MAYOR Block 6 West or “MBS 6W” or the “Site”), is requesting approval for a long-term ground lease and a permanent loan of up to $47,361,690. The Project will serve extremely low to Nadia Sesay EXECUTIVE DIRECTOR low-income families. The requested funding amount is included in the approved Recognized Obligation Payment Schedule (“ROPS”), for the fiscal year beginning July 1, Marily Mondejar CHAIR 2018 and ending June 30, 2019, as Item #405, which was approved by the California Department of Finance (“DOF”). Miguel Bustos Dr. Carolyn Ransom-Scott Mara Rosales The Project is located on one of the “Agency Affordable Housing Parcels” as defined in Darshan Singh COMMISSIONERS the Mission Bay South Owner Participation Agreement. The development team consists One S. Van Ness Ave. of Mercy, Paulett Taggart Architects, and Mercy Housing Management Group. The Project 5th Floor Sponsor has established Mercy Housing California 78, L.P. as the development entity for San Francisco, CA 94103 the Project. 415 749 2400 www.sfocii.org 118-0042019-002 Page 2 The Commission on Community Investment and Infrastructure (“OCII Commission”) approved Mercy as developer on February 21, 2017, authorized an Exclusive Negotiations Agreement, which included an Option to Ground Lease, and a Predevelopment Loan Agreement in the amount of up to $3,495,000 million for the Project on July 18, 2017, and approved the Project’s schematic design on March 20, 2018. In preparation for the close of construction financing and construction start, planned for end of April 2019, the Sponsor is seeking to enter into a 75-year Ground Lease (“Ground Lease”) for MBS 6W (Attachment 1) and an Amended and Restated Loan Agreement (Attachment 2) in an aggregate amount not to exceed $47,361,690 (this amount is the total of the existing $3,495,000 million predevelopment loan and requested additional gap amount of $43,866,690). The loan request was approved by the Citywide Affordable Housing Loan Committee on December 7, 2018 (Attachment 3). Staff recommends that the Commission authorize a Ground Lease Agreement and an Amended and Restated Loan Agreement, and adopt environmental findings pursuant to California Environmental Quality Act. BACKGROUND Mission Bay Affordable Housing Development On September 17, 1998, the SFRA Commission approved the Mission Bay North and South Redevelopment Plans and Owner Participation Agreements (“OPAs”) with the Mission Bay master developer, FOCIL-MB, LLC, the successor in interest to Catellus Development Corporation. Since the initial approval of the South OPA, the document has been amended six times to modify the development plan on several parcels. The enforcement of the North and South OPAs as amended will result in 6,514 residential units, with approximately 29% or approximately 1,918 units set aside as affordable. In Mission Bay North 700 affordable units (inclusionary and OCII-sponsored) have been completed. In Mission Bay South, the MBS OPA requires OCII to construct a base number of 1,108 affordable housing units. In addition, Section 3.6 of the MBS Housing Program (Attachment 3 to the MBS OPA) allows OCII to construct an additional 110 affordable housing units, pending assessment of the development impacts and any necessary approvals, for a maximum total of 1,218 affordable housing units. The affordable units in Mission Bay North and South are comprised of inclusionary affordable units and units developed by nonprofit housing developers on OCII Affordable Housing parcels. OCII Affordable Housing parcels comprise 15 acres of land that the Master Developer in Mission Bay North and South is required to contribute to OCII. To date, 493 affordable units have been completed in Mission Bay South. This includes 150 affordable units at 1180 4th Street (Block 13 East), 200 affordable family units at Five 88 (588 Mission Bay Boulevard North on MBS Block 7 West), and 143 units at 626 Mission Bay Boulevard (MBS Block 6 East), which was completed earlier this year. Approximately 725 affordable units remain to be completed and leased, including 119 units in the OCII-sponsored affordable development currently under construction on Block 3 East or 1150 3rd Street. 118-0042019-002 Page 3 Mission Bay Mission Bay Mission Bay North and # of Affordable Units North South South Built 700 493 1,193 Under Construction or Planned 0 725* 725* TOTAL 700 1,218 1,918 * The South OPA requires OCII to construct a base number of 1,108 affordable housing units. In addition, Section 3.6 of the Mission Bay South Housing Program (Attachment 3 to the South OPA) allows OCII to construct an additional 110 affordable housing units, pending assessment of the development impacts and any necessary approvals, for a maximum total of 1,218 affordable housing units. In total and as shown in the table above, 1,193 affordable units have been completed and 725 units (including the additional 110 allowable affordable units) remain to be completed in the Mission Bay project areas. Project Background OCII released a request for proposals (“RFP”) for the Site in August 2016. Following review and evaluation of five submittals, OCII staff recommended and OCII Commission approved the selection of the team led by the Sponsor to develop affordable rental housing for extremely-low to low-income families on MBS 6W on February 21, 2017. On July 18, 2017, the OCII Commission authorized the Executive Director to enter into an Exclusive Negotiations Agreement (“ENA”) and Predevelopment Loan with the Sponsor. The ENA also included the form of Option to Ground Lease Agreement, which was required by the California Debt Limit Allocation Committee and Tax Credit Allocation Committee to demonstrate site control for MBS 6W. The schematic design for the Project was reviewed by the Mission Bay Citizens Advisory Committee (“CAC”) in March 2018 and was conditionally approved by the OCII Commission in March 2018. The development team has responded to the schematic design conditions of approval. Project renderings and a site plan are included as Attachment 4. In addition, Mission Bay South neighborhood amenities are shown in Attachment 5. Upon completion of the Project, OCII will transfer its assets related to the Site to the Mayor’s Office of Housing and Community Development (“MOHCD”), which is the designated Housing Successor under Redevelopment Dissolution Law. DISCUSSION Project Description The Site is a 1.13 acres parcel bounded by China Basin Street to the north, Merrimac Street to the west, Mission Bay Boulevard North to the south and a 143-unit affordable rental development to the east (MBS Block 6 East) bordered by a mid-block walkway (see Attachment 5 for amenities and transit maps). The Project is a 152-unit development for extremely-low to low-income families; 38 units will be set aside as 118-0042019-002 Page 4 public housing replacement units for households voluntarily relocating from Sunnydale or Potrero Annex or Terrace HOPE SF sites. The Project includes 10 studios, 34 one-bedroom units, 76 two-bedroom units, 29 three-bedroom units, 1 four-bedroom unit, 1 five-bedroom unit, and 1 two-bedroom manager’s unit. The Project will be one of the first in San Francisco to implement the new 2018 federal and state Low Income Housing Tax Credits (“LIHTC”) regulations, which allow LIHTC-funded affordable housing projects to include units targeted to households making up to 80% of AMI as long as the project’s average targeting does not exceed 59% Area Median Income (“AMI”) as defined by United States Department of Housing and Urban Development (“HUD”). For the purposes of this Project, the units in the Project will be restricted at between 40% and 80% of AMI as published by MOHCD (“MOHCD AMI”). The Project’s average AMI is 56% MOHCD AMI. The 38 units set aside for households moving from HOPESF sites will be supported with project-based Section 8 vouchers (PBVs). The building will total approximately 185,148 square feet of building space organized in four wings that flank a central courtyard. The tallest wing will have a height of seven stories while the shortest wing will consist of four stories. The Project includes a ground floor childcare center, 26 parking spaces (0.2:1 ratio) and curbside 2 car share spaces, a large landscaped courtyard, roughly 1,000 square foot in community-serving commercial space, a large community room with a kitchen, a multipurpose teen room, children’s play space, services offices, onsite laundry and 130 bike parking spaces. Project Financing and Loan Terms As previously noted, the OCII Commission approved a $3,495,000 million loan in July 2017 to fund predevelopment activities. On December 7, 2018, the Citywide Affordable Housing Loan Committee recommended approval of a total OCII subsidy amount of $47,361,690, which includes the $3,495,000 million in existing predevelopment funds as well as an additional $43,866,690 in permanent funding.