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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 07/18/2006 - RESOLUTION 2006-073 ADOPTING A REAL ESTATE RESALE ITEM NUMBER: 33 AGENDA ITEM SUMMARY DATE: JUIY18, 2008 FORT COLLINS CITY COUNCIL STAFF: Ken Waldo Maurice Head SUBJECT Resolution 2006-073 Adopting a Real Estate Resale Provision for Community Development Block Grant(CDBG),Home Investment Partnership (HOME), and Affordable Housing Fund Loans. RECOMMENDATION Staff and the Community Development Block Grant(CDBG)Commission recommend adoption of the Resolution. FINANCIAL IMPACT The Real Estate Resale Provision will have no negative impact on the City's General Fund. The provision provides an opportunity for the City to recapture additional CDBG, HOME, and Affordable Housing Fund dollars upon the resale of land and/or buildings (real estate)acquired for affordable housing or other community services and not used for their intended purpose. EXECUTIVE SUMMARY The City currently uses a competitive process to allocate funding from the Community Development Block Grant (CDBG) and Home Investment Partnership (HOME)federal grant programs, and the Affordable Housing Fund for the acquisition of land and/or buildings (real estate) for affordable housing programs/projects and providing for,or improving public facilities. Funds are allocated as deferred, due on sale, zero-interest loans with a five percent (5%) simple interest loan to be repaid if the real estate is ever resold. Staff and the CDBG Commission propose an expansion of the current City policy to include a Real Estate Resale Provision that would protect City resources from projects that fail to be completed and are resold at a profit of more than five percent. BACKGROUND The City currently allocates funding from the CDBG and HOME Programs,and Affordable Housing Fund for affordable housing programs/projects and providing or improving public facilities through the competitive process. The CDBG and HOME Programs are ongoing grant administration programs funded by the Department of Housing and Urban Development(HUD). The Affordable Housing Fund is funded based on allocations of City General Revenues through the annual budget process. July 18, 2006 -2- Item No. 33 When the competitive process started in the spring of 2000,the City allocated funding as deferred, zero-interest,due on sale loans.In other words,recipients of funds made no payments on their loans, but were required to repay the full loan principal amount if the property were resold at some point in the future. Using the Home Buyer Assistance Program as an example, a family could receive $9,000 in down payment assistance to help it purchase a home.The family would make no payments on the loan and would only pay back the loan if the property was sold. In 2003, the CDBG Commission began to express concerns about what would happen if the City were to stop receiving CDBG and/or HOME funds from HUD. Recent Presidential Administrative budget proposals have attempted to eliminate the CDBG Program and recent Congressional actions have reduced funding to both the CDBG and HOME Programs. The Commission also recognized that a dollar loaned in 2003 would not have the same buying power five,ten,or more years into the future and sought a way to reduce the impact if a program were to be eliminated or funding were to be reduced. On October 2, 2003, the CDBG Commission voted to recommend to the City Council a policy change in the manner in which the City allocates funding from the CDBG/HOME Programs and the City's Affordable Housing Fund by adding simple interest to the loans in the amount of five percent (5%)of the loan principal,to be paid at the time that the loan would be repaid.Thus,using the down payment assistance example cited above, if a family received $9,000 to help purchase a home, it would be required to repay$9,450 if the property was sold. On November 18, 2003, the City Council adopted Resolution 2003-130 adding a five percent fee to the principal of City loans to be repaid at the time of repayment of the loan. Since adoption,this policy has worked well. Proposed Policy Change for CDBG/HOME/AHF Loans In the latter part of 2005, the City of Loveland's CDBG staff contacted City staff to report on a funding policy change that would help protect Loveland's funding allocations to projects that fail to be completed as originally planned and property is subsequently sold at a profit. Staff brought Loveland's policy change to the attention of the CDBG Commission and the Commission strongly encouraged staff to develop some policy options for its consideration. In discussions with staff,it was clear the Commission was concerned about allocating funds to major real estate transactions where the intended purpose of the recipient might change, due to market conditions, failure to obtain adequate financing, or a multitude of other factors, and the property is sold several years later and the recipient receives a"wind fall" profit from real estate appreciation helped by City resources. Under the current policy, the City would only receive its initial investment, plus five percent(5%) simple interest. July 18, 2006 -3- Item No. 33 Staff and the CDBG Commission are recommending City Council approve a policy change to initiate a Real Estate Resale Provision that protects the City's limited resources. At its March 9, 2006 meeting, the Commission voted unanimously to recommend the following condition be attached to any contract for acquisition of real property using funds from the City of Fort Collins: "If the recipient fails to complete the project for which it received financial assistance pursuant to the agreement to purchase real property and sells the property, the City will be entitled to receive either: (a) the amount of the City's financial assistance plus five percent (5%); or (b) the percentage of the sale price of the property purchased with financial assistance pursuant to the agreement which is equal to the percentage of the City's financial assistance toward the initial purchase price, whichever is greater." The Real Estate Resale Provision policy would allow the City to recapture appreciation from a failed proposed project where the real estate transaction was purchased with CDBG, HOME and/or Affordable Housing Fund dollars.For example,if the City loans$100,000 to help a recipient acquire a property for a price of $300,000, the City has a financial "interest" of 33% in that real estate acquisition. Continuing the example, assume the recipient,for whatever reason, fails to complete their project and sells the property for$400,000. Under the current policy the City would be entitled to only$105,000 (the initial $100,000 loan plus the 5% simple interest loan). Under the proposed policy, the City would be entitled to receive$132,000, since the City's "interest" in the property is 33%and would be due an amount which is"equal to the percentage of the City's financial assistance toward the initial purchase price." Since the$132,000 amount is obviously larger than the$105,000 amount, the City would be entitled to the $132,000. Thus in summary, at a minimum, the City will always be entitled to the amount of its original financial assistance plus five percent. In cases where a failed project's property is sold for an amount greater than five percent over the original loan, the new provision would allow the City to share in a portion of that larger amount equal to the percentage of the City's financial assistance toward the initial purchase price. Applicants who traditionally apply for and receive financial assistance from the City to acquire real estate for their programs/projects were informed of the proposed policy change during the 2006 spring cycle of the competitive process. No opposition was expressed to the proposed policy change. The goal also of the Real Estate Resale Provision,as proposed by staff and the CDBG Commission, is to help the City be more strategic in recapturing CDBG, HOME and Affordable Housing Fund dollars at a fair rate when property is resold by a recipient who did not meet the intended purpose of the financial assistance to benefit low and moderate income households as required by federal regulations and City policies established in the "Priority Affordable Housing Needs and Strategies Report". It is also about using City funding smarter, to get the most production from limited resources. CITY OF FORT COLLINS COMMUNITY DEVELOPMENT BLOCK GRANT COMMISSION Meeting Minutes March 9, 2006 Commission members attending: Bob Browning, Chair Eric Berglund, Vice Chair Trina Buxton-Flores Michael Kulischeck Theresa Ramos-Garcia Jeff Taylor Dennis Vanderheiden Jennifer Wagner Cheryl Zimlich (late arrival) City Council Liaison: Ben Manvel Staff attending: Ken Waido Heidi Phelps Julie Smith Chairman Browning opened the meeting at 6:30 p.m. CITIZEN COMMENTS No citizen comment was offered. APPROVAL OF JANUARY 12, 2006 MINUTES Discussion was held whether the phrase "Fort Collins is viewed favorably in this light" under "Other Business — Change of Entity" was reflective of the Commission's discussion or staff comments. It was decided that the phrase should be stricken. Moved by Mr. Berglund, seconded by Mr. Taylor: To approve the minutes as amended. Motion approved unanimously. LAND RESALE TERMS DISCUSSION Community Development Block Grant Commission Meeting of March 9,2006 Page 2 Mr. Waido reported that he has worked with the City Attorney's Office to develop wording to expand this policy beyond land to include structures and buildings. Commission action is needed to adopt this language and have it presented to City Council for final approval. The need for this language arose out of the City of Loveland's contract, which prevents land from failed projects having received federal monies from being sold for windfall profits. Moved by Ms. Zimlich, seconded by Mr. Berglund: To accept the proposed language as reflective of the Commission's intent, but removing the initial occurrence of the words "which was," and to forward the language to City Council for final review and approval. Motion approved unanimously. LAND BANK The Land Bank program attempted a joint venture with CARE to acquire a 15- acre parcel on Kechter. CARE withdrew its participation, and the Land Bank program closed on the property for approximately $1.15 million. The intent is to hold the property for at least five years and then, when market conditions are favorable, issue an RFP for the most advantageous use of the property for affordable housing. Staff is working with Storm Drainage for acquisition of several lots on Vine, west of Shields Street. Storm Drainage needs property for improvements, but not all of the property is needed. The remaining property may be held for affordable housing development. Should this property close, the Land Bank program will be drained of funds. In response to questions, Mr. Waido stated that the Kechter property is within the Growth Management Area boundary and subject to annexation. Staff is expecting a density of approximately 10 units per acre. COMPETITIVE PROCESS The interview schedule has been distributed. The 25 public service presentations alone will take two days. The applicants were grouped to provide the most convenience to applicants' schedules and a clear flow of information to the Commission. Dinner will begin at 5:30 p.m. and presentations promptly at 6:00 p.m. The Chair of the Affordable Housing Board will give its perspective and rankings of applications to the Commission during dinner on Thursday. In the recommendations meeting on April 6, the Public Service and Public Facilities recommendations will be discussed first in order to allow Mr. Vanderheiden's participation. Mr. Vanderheiden has a conflict of interest for the RESOLUTION 2006-073 OF THE COUNCIL OF THE CITY OF FORT COLLINS ADOPTING A REAL ESTATE RESALE PROVISION FOR COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG), HOME INVESTMENT PARTNERSHIP (HOME), AND AFFORDABLE HOUSING FUND LOANS WHEREAS, the City of Fort Collins receives financial assistance from the Department of Housing and Urban Development(HUD)under the Community Development Block Grant(CDBG) Program, and Home Investment Partnership (HOME) Program, for affordable housing and community development activities; and WHEREAS, the City Council allocates funds from the General Fund into the Affordable Housing Fund for affordable housing projects/programs; and WHEREAS, unknown budget constraints could adversely affect the availability of funds from the three sources in the future and the early generation of program income could help ensure that these programs continue in event of future adverse financial situations; and WHEREAS, when the competitive process started in the spring of 2000, the City allocated funding from the CDBG and HOME Federal Grant Programs, as well as funds from the City's Affordable Housing Fund, as zero-interest, due on sale, deferred loans; and WHEREAS,on November 18,2003,the City Council adopted Resolution 2003-130 adding a five percent (5%) fee to the principal of City loans to be repaid at the time of repayment of the loan; and WHEREAS,the CDBG Commission is concerned about allocating funds to major real estate transactions where the intended purpose of the recipient might change and the property is sold whereby the recipient receives a"windfall profit" from real estate appreciation gained, in part, by City assistance; and WHEREAS, at the CDBG Commission meeting conducted on March 9, 2006 meeting, the Commission voted unanimously to recommend to the City Council that the following condition be attached to any contract for the acquisition of real property using funds from the City of Fort Collins: If the recipient fails to complete the project for which it received financial assistance pursuant to the agreement to purchase real property and sells the property, the City will be entitled to receive either:(a)the amount of the City's financial assistance plus five percent (5%); or (b) the percentage of the sale price of the property purchased with financial assistance pursuant to the agreement which is equal to the percentage of the City's financial assistance toward the initial purchase price, whichever is greater. NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF FORT COLLINS that staff is hereby authorized to add the following condition(or similar language)to any contract for the acquisition of real property using funds from the City of Fort Collins: If the recipient fails to complete the project for which it received financial assistance pursuant to the agreement to purchase real property and sells the property, the City will be entitled to receive either: (a)the amount of the City's financial assistance plus five percent (5%); or(b) the percentage of the sale price of the property purchased with financial assistance pursuant to the agreement which is equal to the percentage of the City's financial assistance toward the initial purchase price, whichever is greater. Passed and adopted at a regular meeting of the Council of the City of Fort Collins this 18th day of July, A.D. 2006. Mayor ATTEST: City Clerk