Redevelopment Agency Meeting: May 12, 2009

Agenda Item: 1-P

To: Chairperson and Redevelopment Agency

From: Andy Agle, Director of Housing and Economic Development

Subject: Property Conveyance from Habitat for Humanity to Redevelopment Agency and Cancellation of Loan Agreement

Recommended Action

Staff recommends that the Redevelopment Agency authorize the Executive Director to:

1. Negotiate and execute a Conveyance Agreement and all other legal documents necessary to convey the property located at 2018 19^th Street from Habitat for Humanity Los Angeles (Developer) to the Redevelopment Agency of the City of Santa Monica (Agency); and

2. Cancel all contracts, loan agreements and financial obligations between the Developer and the Agency that relate to this proposed affordable homeownership development.

Executive Summary

In early 2008, Habitat for Humanity informed City staff that it would not complete the affordable home ownership project located at 2018 19^th Street for which it received a $575,000 acquisition and predevelopment loan in October 2002. Staff recommends that the Agency authorize the Executive Director to negotiate and execute an agreement wherein Habitat for Humanity conveys the land to the Redevelopment Agency in exchange for cancellation of the loan, its associated contracts and obligations.

Background

In October 2002, the Redevelopment Agency of the City of Santa Monica funded a $575,000 loan to Habitat for Humanity Los Angeles (Habitat) for acquisition and predevelopment costs associated with a proposed affordable home ownership project at 2018 19^th Street. Habitat used $425,000 of the loan for acquisition of the site, with the balance funding a portion of the predevelopment expenses. Additionally, Habitat provided $80,000 of its own funds for predevelopment expenses.

Discussion

In early 2008, Habitat contacted the City regarding its inability to proceed with the project, citing financial infeasibility, decreased fundraising capacity and the re-direction of organizational resources to other Los Angeles projects. On April 17, 2008, the City Manager informed the Council of the project’s status and Habitat’s intent to discontinue the project.

The existing loan agreement provides that Habitat’s failure to proceed in a timely manner with the Agency-financed project would result in a default of the loan. Default proceedings typically lead to a foreclosure process that includes a competitive public auction and therefore do not guarantee that the property will be transferred to the Agency. In a foreclosure process, the Agency would be first in line for any property auction proceeds; however, there is no guarantee that the Agency would recover all of its loan proceeds. Additionally, if the Agency desires to take ownership of the property, the Agency would have to compete with other buyers in a foreclosure process and risks having to pay more for a site the Agency financed initially.

Staff considers the site to be a valuable resource worth maintaining as a future affordable housing opportunity. The loan agreement does not provide a simple mechanism for the property’s ownership to be transferred to the Agency in the event of default. In conjunction with the City Attorney’s Office and Lawyer’s Title Company, staff has determined that a conveyance transaction assures that the property is transferred to the Agency with relative ease at minor cost (escrow fees).

Considering the Developer’s good faith effort to develop the property, its own investment of time, staff and financial resources, its nonprofit status and the likelihood of increased value of the property since its 2002 purchase (based upon sales of comparable sites), staff recommends that the Conveyance Agreement provide cancellation of the loan in exchange for conveyance of the site to the Agency.

Staff is evaluating several small sites to determine if a future scattered-site affordable housing development could incorporate this property. Such a development may be several years away, considering the current uncertainty in the financing markets. If it is determined that affordable housing is not feasible at the property, then staff will return to the Redevelopment Agency with recommendations regarding the disposition of the property. Staff believes the current value of the property is greater than the Agency’s original loan.

Financial Impacts & Budget Actions

One-time costs include title and escrow fees estimated at $4,000 to $5,000 and property fencing estimated at $10,000. The funding for these expenses is available in account H18005008.589000.

Prepared by: Lisa Luboff, Senior Administrative Analyst

Approved:	Forwarded to Council:
Andy Agle, Director Housing and Economic Development	P. Lamont Ewell City Manager