The City of Rocklin is the owner of multiple properties bounded by Railroad Avenue on the north, Pine Street on the east, Pacific Street on the south and Oak Street on the west (Assessors Parcel Numbers 010-121-001, 010-121-002, 010-121-004, 010-121-005 and the intersecting alleyway between the parcels). The foregoing parcels are referred to in this staff report as the Site. The Site has previously been designated as surplus to be disposed in accordance with the requirements of the Surplus Land Act (Sections 54220-54234 of the California Government Code; herein, together with the implementing Guidelines as referenced below, the Surplus Land Act). The intention of the City has been to dispose of the Site, by means of a sale or ground lease, for the development of affordable rental housing.
In implementation of the Surplus Land Act (SLA) and the implementation of SLA guidelines established by the California Department of Housing and Community Development (HCD) (the Guidelines), on October 24, 2021, the City issued a Notice of Availability (NOA) of Surplus Land providing notification that the City intended to sell or ground lease the Site for the purposes of development of affordable rental housing. As of the close of the 60-day period, the City had received a total of seven letters of interest, and all but one met the minimum requirements stipulated in the NOA. Following the close of the 60-day period, the City entered into a minimum period of ninety (90) days of negotiations with responsive developers as generally described at Government Code Section 54223.
On February 25, 2022, a Request for Proposals (RFP) for the proposed ground lease of the site was issued to the six developers who had responded with Letters of Interest to the NOA. A review panel consisting of staff, a contract affordable housing finance professional and contract legal counsel reviewed the proposals. The panel reviewed the submittals and determined that while six proposals met the minimum requirements of the Surplus Land Act for disposition of property, three respondents' proposals indicated they would provide for a greater number of rental units to be available at affordable rent to households of limited income than was the case with the other proposals.
After the evaluations, the panel determined that one proposal, that of Community HousingWorks, a California nonprofit public benefit corporation (CHW) proposed the highest number of rental units to be available at affordable rent to households of limited income.
In conformance with the Surplus Land Act, local agencies that have declared real property surplus pursuant to the SLA, are required to provide HCD with a compliance report confirming the manner and outcome of the notification of availability of surplus land process. City staff reported on its process to HCD; in response, HCD provided a letter dated as of September 15, 2022, indicating that the City had completed its process in compliance with the Surplus Land Act.
At the September 27, 2022 City Council meeting, the City Council authorized and approved issuance of a Preliminary Commitment Letter with CHW (Exhibit 5). The Preliminary Commitment Letter provides evidence of the reservation of earmarked surplus low-moderate income funds by the city for an affordable rental housing project in the amount of Two Million Six Hundred Thousand dollars ($2,600,000). The Preliminary Commitment Letter indicated that the City intended to engage in further negotiations with CHW toward the culmination of a comprehensive transactional agreement under which the disposition of a leasehold interest for development of affordable rental housing (the Affordable Housing Agreement, as described below) would be carried out.
The Site is on the City’s Regional Housing Needs Allocation (RHNA) Available Sites Inventories in the current 2021-2029 Housing Element Update in the Moderate Category. The project’s 100% affordability for individuals in the Lower Income Category not only complies, but exceeds the City’s expectations for Housing Element outcomes on this site. The Project would therefore assist the City in meeting its housing goals and obligations.
Affordable Housing Agreement
The proposed Affordable Housing Agreement (AHA) identifies that CHW will arrange for the reservation of federal and state tax credits as well as for other private and public funding, upon which CHW (or an entity related to CHW) would proceed to develop approximately one hundred ten (110) apartment units on the Site, with appropriate amenities. Not fewer than twenty three (23) of the rental units developed would be restricted to rental at affordable rents (as determined consistent with Health & Safety Code Sections 50052.5 and 50053) to households having incomes of not greater than thirty percent (30%) of the area median income (Extremely Low Income Households) for Placer County (Median Income). CHW would additionally develop other units, some of which would be restricted to rental at affordable rent to households having incomes of not greater than fifty percent (50%) of Median Income (Very Low Income Households). Over fifteen percent (15%) of the units developed would be restricted to use as affordable rental units to Extremely Low Income Households or Very Low Income Households. In the event other sources of funding provide that additional rental units are to be restricted on the basis of limited incomes and affordable rent, CHW would also comply with such additional requirements and instruments under the Affordable Housing Agreement would affect such more restrictive provisions as required by other entities.
The proposed development of approximately one hundred ten (110) apartment units on the Site with ancillary amenities is referred to for convenience herein as the “Project.” The basic structure of the AHA would provide for CHW, to ground lease the Site from the City. CHW has indicated that it intends to seek to divide the Site into two portions (Portion A and Portion B). Each such Portion would be developed with a separate financing package utilizing, among other tools, 9% housing tax credits, 4% housing tax credits, multifamily housing bonds (which would be issued as conduit bonds without City liability), a private loan, and a loan by the City of the City Loan Amount of $2.6 million. The sole source for the City Loan Amount shall be money held in the City’s Low and Moderate Income Housing Asset Fund pursuant to the Dissolution Law, Health and Safety Code Sections 34170, et seq., in particular sections 34176 and 34176.1 (Housing Asset Funds). Housing Asset Funds are limited to be used for purposes of promoting affordable housing in the City.
As noted above, if the Site is divided, with all mapping and associated costs being borne by CHW, the Site could be developed under two separate ground leases by separate entities, both being CHW or an affiliate thereof which shall have been approved by the City for such purpose. No units at the Site would be restricted on the basis of age. All apartment units would be affordable to households of limited income with at least 49% of the units to be restricted to Extremely Low Income Households and Very Low Income Households.
The manner in which the Site would be divided is to be determined later, with any costs associated with such division (such as preparation of a parcel map, if applicable) would be borne by CHW.
Before commencing development, CHW would comply with the City’s customary land use entitlement process, including without limitation design review and compliance with standards for the Quarry District. The proposed Affordable Housing Agreement as submitted sets forth several conditions precedent to effecting the ground lease of the Site or to the City infusing funds. Such conditions, which are customary to similar agreements, include: (i) completion of the City’s land use entitlement process; (ii) readiness of all other funding sources to fund; (iii) a demonstration by CHW, satisfactory to City, showing that CHW has secured funding commitments sufficient to accomplish the development of the Site in conformity with the Affordable Housing Agreement; and (iv) insurance and indemnity provisions by which CHW would defend, hold harmless, and indemnify the City (and its officers, agents, and employees) from such claims, if any, as may arise in connection with the proposed Project.
As the Site was acquired by the City’s former redevelopment agency utilizing moneys held by the former redevelopment agency for affordable housing, and further in that the City Loan Amount would be funded using moneys that were originally housing moneys of the former redevelopment agency, a supplement to this report (which references Section 33433 of the California Health and Safety Code) is submitted to address certain particulars that may be applicable due to the source of moneys for the Site acquisition and the City Loan Amount; that Report is attached as Exhibit 3.
Land Use Entitlement and City Loan
Under the Affordable Housing Agreement, CHW would prepare and submit to the City an application for land use entitlements for the Site, which may include incentives under the State Density Bonus Law, California Government Code Section 65915, et seq. and the City’s implementing density bonus ordinance (together, Land Use Entitlement). As noted above, the Project will consist primarily of approximately one hundred ten (110) apartment units, one of which is earmarked to be a market rate manager unit. Parking, leisure space, and amenities shall be provided as determined under the City’s land use approval process.
CHW shall prepare and submit to the City its application for the Land Use Entitlement that includes: Building Plan Check and, if approved, with construction subject to the City’s development standards, zoning and other laws and regulations. The City, in its capacity as housing successor entity, will sign as owner such applications as may be customarily required to be signed by a property owner in connection with the City’s land use processes; however, the City shall retain its discretion with respect to the review of any submittals.
As it is contemplated, as provided in the Affordable Housing Agreement, that the City Loan Amount would be repayable from “Residual Receipts” as more fully set forth in the Affordable Housing Agreement; briefly, Residual Receipts are revenues remaining from gross project revenues (chiefly, rents paid by tenants) after accounting for payments of any senior loans and operating expenses). The Affordable Housing Agreement will leverage the investment of the City by requiring the Developer to obtain additional financing for the construction and operation of the Project through a combination of funding sources, to include an equity contribution by a limited partner investor in consideration for certain federal and state tax credits (collectively, Tax Credits), as described in greater detail in the Affordable Housing Agreement.
CHW has informed City staff that CHW plans to make an application to the California Tax Credit Allocation Committee (TCAC) for 4% Tax Credits and 9% Tax Credits by the second round, which occurs in July 2023. If CHW’s first two applications for 4% Tax Credits and 9% Tax Credits are unsuccessful, the City may, as more particularly provided in an AHA, allow for an additional applications, all to be more particularly set forth in the AHA; any such extensions shall be at the discretion of the City Manager acting on behalf of the City.