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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 04/20/2021 - SECOND READING OF ORDINANCE NO. 045, 2021, AMENDIN Agenda Item 5 Item # 5 Page 1 AGENDA ITEM SUMMARY April 20, 2021 City Council STAFF Sue Beck-Ferkiss, Social Policy and Housing Programs Manager Jackie Kozak-Thiel, Chief Sustainability Officer Ingrid Decker, Legal SUBJECT Second Reading of Ordinance No. 045, 2021, Amending Section 23-354 of the Code of the City of Fort Collins Regarding Disposition of Land Bank Property. EXECUTIVE SUMMARY This Ordinance, unanimously adopted on First Reading on March 16, 2021, replaces the right of reverter clause in the Land Bank program with a more flexible requirement that can be tailored to each project. Currently, the right of reverter would allow the City to seize property if the Land Banking Code requirements are not met, but this possibility makes it difficult, if not impossible, for developers of affordable housing to obtain financing for their projects on Land Bank parcels. The proposed amendments to City Code in the Ordinance retain the requirement that the City secure permanent affordability to the greatest extent possible, through a deed restriction, covenant or such others instrument or instruments as the City Manager and City Attorney deem appropriate but do not lock the City into one remedy for non-compliance. STAFF RECOMMENDATION Staff recommends adoption of the Ordinance on Second Reading. ATTACHMENTS 1. First Reading Agenda Item Summary, March 16, 2021 (w/o attachments) (PDF) 2. Ordinance No. 045, 2021 (PDF) Agenda Item 11 Item # 11 Page 1 AGENDA ITEM SUMMARY March 16, 2021 City Council STAFF Sue Beck-Ferkiss, Social Policy and Housing Programs Manager Jackie Kozak-Thiel, Chief Sustainability Officer Ingrid Decker, Legal SUBJECT First Reading of Ordinance No. 045, 2021, Amending Section 23-354 of the Code of the City of Fort Collins Regarding Disposition of Land Bank Property. EXECUTIVE SUMMARY The purpose of this item is to replace the right of reverter clause in the Land Bank program with a more flexible requirement that can be tailored to each project. Currently, the right of reverter would allow the City to seize property if the Land Banking Code requirements are not met, but this possibility makes it difficult, if not impossible, for developers of affordable housing to obtain financing for their projects on Land Bank parcels. The proposed amendments to City Code in the Ordinance retain the requirement that the City secure permanent affordability to the greatest extent possible, through a deed restriction, covenant or such others instrument or instruments as the City Manager and City Attorney deem appropriate but do not lock the City into one remedy for non-compliance. STAFF RECOMMENDATION Staff recommends adoption of Ordinance on First Reading. BACKGROUND / DISCUSSION While the Land Bank Program was created in City Code in 2001, it was not until 2016 that the City sold the first parcel, on West Horsetooth Road, to be developed as affordable housing. During and after the negotiation of the sale of the Horsetooth parcel for the Village on Horsetooth several issues were identified where improvements could strengthen the program. One was that the primary lender on the project had not realized that the City’s deed conveying the property contained the right of reverter required by the City Code. City staff was advised that had the lender realized that remedy existed, giving it no recourse if its borrower defaulted on the City’s requirements, it would likely not have financed the project. In 2018, Council approved specific changes to the Land Banking City Code language to address several issues with the Land Bank process, including a requirement that the City provide to both the property owner and any lender notice and an opportunity to cure any non-compliance with the requirements of the Code before the City could retake the property. Providing notice and an opportunity to cure was a step in the right direction, but it did not go far enough to mitigate the issues raised by developers and their lenders. The City is now working with development partners on a second Land Bank project on a parcel on Kechter Road, and the right of reverter has been raised again as a potential barrier to financing for the proposed project, currently in the development review process. The right of reverter language was in the original Land Bank Ordinance as a method for ensuring long term affordability. While the right of reverter would pose the least financial risk to the City as it could just take back the property if the property owner is not meeting the requirements of the Land Bank ordinance, City staff likely did not have enough knowledge at the time about how that right could impact project financing or did not consider ATTACHMENT 1 Agenda Item 11 Item # 11 Page 2 that potential private lenders might be unwilling to assume all the risk. We have since learned that banks providing construction loans or permanent financing for projects are generally unwilling to lend on a project where they risk losing the collateral securing the loan with no compensation. All interested parties want development on the Land Bank land to comply with the construction timeline and affordability requirements in Section 23-354 of the City Code now and in the future. That might look different for different development projects depending on whether they are ownership or rental projects, and how they are structured. There are other options for ensuring affordability that may be more suited to various developments on Land Bank parcels, and enforcement details would be negotiated accordingly. For example: The City could, when it sells a property to a housing provider, place an affordability covenant or deed restriction on the property that would be binding on future owners and, if the primary lender agrees, would remain in a superior position on the title to the property, ahead of any bank loans. That means if the property owner defaulted on its loan and the bank foreclosed, the affordability covenant would remain on the property regardless of who the next owner was. If the affordability requirements were not met, the City would not take back ownership of the property but could enforce the covenant through a court order. This approach would meet the City’s goal of ensuring affordability in the future without the City having to seize, own and manage, and try to resell an affordable housing project. In addition to or instead of a covenant, the City may hold a deed of trust on the property depending on how the sale of the property to the housing provider is structured, and whether the City is providing any additional funding for the project. The deed of trust could require compliance with the timing and affordability restrictions in the Land Bank ordinance by giving the City the right to foreclose and take back ownership of the property, although the City would likely have to pay off or assume any superior outstanding loan. Because the best way to structure permanent affordability requirements is unique to individual projects, City Code language must be flexible enough to accomplish that end. The flexibility permitted by this City Code change should remove the financing challenge identified for developments on Land Bank parcels. BOARD / COMMISSION RECOMMENDATION At the March 4, 2021 meeting, the Affordable Housing Board voted unanimously to support the change in City Code. PUBLIC OUTREACH While no public outreach has been conducted at this time, this issue was included in outreach on the Land Bank program update in 2018 resulting in the inclusion of notice of noncompliance and an opportunity to cure. Also, staff has been contacted about the financing issue from developers and lenders in the community. ATTACHMENTS 1. Affordable Housing Board Minutes (draft) (PDF) ORDINANCE NO. 045, 2021 OF THE COUNCIL OF THE CITY OF FORT COLLINS AMENDING SECTION 23-354 OF THE CODE OF THE CITY OF FORT COLLINS REGARDING DISPOSITION OF LAND BANK PROPERTY WHEREAS, on April 17, 2001, the City Council adopted Ordinance No. 048, 2001, enacting Article XIII of Chapter 23 of the City Code regarding land banking; and WHEREAS, the purpose of the land bank program is to enable the City to acquire, hold and sell real property to assist housing providers in providing affordable rental and homeownership housing for low income residents; and WHEREAS, on April 5, 2016, the City Council adopted Ordinance No. 034, 2016, which amended Section 23-354 of the City Code to provide flexibility in income targets for the land bank program and facilitate the first sale and development of a land bank parcel (the “Horsetooth Project”); and WHEREAS, in 2016 the City Council also directed City staff to conduct a comprehensive review of the land bank program and recommend updates; and WHEREAS, to protect the City’s interest in maintaining affordable housing units in perpetuity, the land bank Code provisions were originally drafted to include a requirement that if the housing provider who purchased a land bank parcel did not meet certain development deadlines, or if the housing provider or future owners of the property did not continue to use it for affordable housing, the property would automatically revert to the City’s ownership; and WHEREAS, during the Horsetooth Project it became clear that this right of reverter retained by the City makes it difficult, if not impossible, for affordable housing developers to secure financing for a project on a land bank parcel, because of the risk to lenders that, if the developer defaulted on the City’s requirements, the City could retake the property and the lender would lose the collateral for its loan; and WHEREAS, on March 6, 2018, the City Council adopted Ordinance No. 037, 2018, making numerous updates to the land bank provisions of the City Code, including a requirement that the City give the housing provider and any lenders notice and an opportunity to cure any defaults before retaking title to a property; and WHEREAS, while the 2018 changes were a step in the right direction, housing providers and lenders have since advised City staff that the right of reverter is still too severe a remedy, and will likely prevent housing providers from securing financing for future development projects on land bank properties; and WHEREAS, the City has other alternatives for ensuring compliance with the project timeline and affordability requirements of the land bank Code provisions, including deed restrictions, covenants, or deeds of trust, which would still give the City the right to legally enforce its requirements, but would not allow the City to retake ownership of a land bank parcel without making financial arrangements with the primary lender or lenders on a housing project; and WHEREAS, which legal instruments would be appropriate for each development project depends on the nature of the development and the funding sources required, so City staff has recommended amendments to the City Code that would give the City Manager, in consultation with the City Attorney, the flexibility to determine which legal instruments are most appropriate for a given project, and negotiate the specific terms of those instruments with a selected housing provider and its lenders; and WHEREAS, the sale of a land bank parcel for a particular project would still be subject to approval by the City Council; and WHEREAS, the City Council finds it is in the best interests of the City and its citizens to facilitate the sale and development of City-owned land bank properties by amending the City Code as described herein. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby makes and adopts the determinations and findings contained in the recitals set forth above. Section 2 That Section 23-354 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 23-354. - Disposition of land bank property. In addition to the criteria established for the disposition of property in Article IV of this Chapter, no property or portion of a property acquired pursuant to this Article shall be sold by the City except in accordance with the following criteria: … (3) The City’s conveyance of the property to the housing provider shall be made subject to a deed restriction, covenant or such other instrument or instruments as the City Manager, in consultation with the City Attorney, deems appropriate, which shall run with the title to the property and obligate the housing provider to commence development of all housing within twenty-four (24) months of having acquired the land and to obtain building permits for the construction of all such housing units within forty-eight (48) months of acquisition of the property. If the development requirements are not met, the City will be entitled to pursue the remedies described in such instruments. Any extension of the aforesaid periods of time shall be valid only if approved by the City Manager upon finding that the housing provider has exerted a good faith and diligent effort in pursuing the development but has suffered delays caused by unforeseen circumstances not reasonably within the control of the housing provider. (4) Any property sold by the City for affordable housing under the authority of this Section shall also be made subject to a deed restriction, covenant or such other instrument or instruments as the City Manager, in consultation with the City Attorney, deems appropriate, which shall run with the title to the property, limiting the use of the property to affordable housing as described herein and requiring, to the greatest extent feasible, that if the property is subsequently resold or transferred by the original housing provider, all subsequent owners of such property must continue to use such property for affordable housing. If said property is ever not so used, then the City will be entitled to pursue the remedies described in such instruments. … Introduced, considered favorably on first reading, and ordered published this 16th day of March, A.D. 2021 and to be presented for final passage on the 20th day of April, A.D. 2021. __________________________________ Mayor ATTEST: _____________________________ City Clerk Passed and adopted on final reading on this 20th day of April, A.D. 2021. __________________________________ Mayor ATTEST: _____________________________ City Clerk