TO: Board of Supervisors
FROM: Jennifer Palmer, Director of Housing & Community Services
REPORT BY: Jennifer Palmer, Director of Housing & Community Services
SUBJECT: Reservation of Affordable Housing Funds for a 40-unit Affordable Home Ownership Project
RECOMMENDATION
title
Adopt a Resolution reserving Two Million Dollars ($2,000,000) of Affordable Housing Funds to assist Community Real Estate Fund LLC with the development of 40 low-income affordable first-time home-ownership housing units; and approve a related Budget Amendment. (Fiscal Impact: $2,000,000 Expense; Affordable Housing Fund; Not Budgeted; Discretionary)
[4/5 vote required]
body
BACKGROUND
Napa County receives funds under its Affordable Housing and Incentives Ordinance (County Code Chapter 18.107) which are invested in qualified housing projects to further the development of affordable housing throughout Napa County. Community Real Estate Fund LLC, a Delaware limited liability company, is the owner of the property at 2344 Old Sonoma Road, comprising approximately 8.6 acres and designated by Assessor’s Parcel 004-291-015. This site is known in the community as the former Health & Human Services campus.
The Redwood Building is a 40 unit, for-sale, affordable, home ownership project. It consists of three (3) four- (4) story condominium buildings and is located in Napa’s Choice Neighborhood Initiative Area, a Prohousing-designated infill site. It offers one (1) and two (2) bedroom homes (752-1,079 sq ft), all for low-income, first-time homebuyers. A small Redwood grove will be preserved as open space. The project is being financed with a combination of private construction financing and public subsidies which include federal New Markets Tax Credit (NMTC) equity.
Community Real Estate Fund LLC submitted applications to the City of Napa in 2021 and 2022 requesting a total of Three Million Seven Hundred Sixty-One Thousand Two Hundred Twenty-Four Dollars ($3,761,224) in permanent construction financing for the development of the units, and the City of Napa approved the requested loans.
The new homes will be affordable for purchase by households with low, and moderate incomes, with 25 of the homes reserved for households earning up to 80% of area median income, 15 of the homes reserved for households earning up to 120% of area median income. All homes will be deed restricted and resold only to those meeting the income requirements set by the Project, to ensure that the homes remain affordable. In addition, not less than 5 of the low-income ownership units will be set aside for farmworker households earning up to 80% of Area Median Income.
The financing plan for the Project assumes the majority of funding will come from New Market Tax Credit Loans and California Department of Housing and Community Development (“HCD”) CalHOME Funds. Community Real Estate Fund LLC submitted a request to the County for Two Million Dollars ($2,000,000) in permanent construction financing for the development of 40 low- and moderate-income first-time home buyer affordable home ownership housing units in May 2025.
This is the first affordable housing project seeking funding from the County that is utilizing New Market Tax Credit (NMTC) financing. NMTC is a powerful tool for affordable housing and community development projects. It is specifically beneficial to affordable housing transactions because it attracts private equity investment into projects located in low-income communities through 39% federal tax credits for investors and, as a tax-driven subsidy, it reduces a projects effective financing cost. In other words, it infuses flexible, low-cost capital into developments serving low-income communities, making otherwise infeasible projects financially viable and more impactful.
Under the Multifamily Rental Housing Transaction Underwriting Guidelines, use of affordable housing funds for the refinancing of existing debt is generally prohibited, with exception for extraordinary circumstances. The Guidelines do allow for the use of affordable housing funds for acquisition-related expenses. The intent of this policy is to ensure that program resources are directed primarily toward new development costs and the creation or preservation of affordable housing units. In this case, staff finds that extraordinary circumstances exist which warrant an exception to the standard policy. The use of NMTC financing imposes unique structuring requirements related to timing, ownership, and financing flows that differ materially from conventional affordable housing transactions.
Specifically:
1. The NMTC transaction structure requires that all project assets, including land, be owned and contributed through a qualified subsidiary or leveraged structure consistent with federal tax credit regulations.
2. The original land acquisition was completed more than 24 months ago to secure a critical site in a rapidly developing area and to preserve long-term affordability potential. Delaying acquisition until financial closing would have risked loss of the site and undermined project feasibility.
3. The requested use of funds to either pay acquisition costs directly (the preferred use) or to refinance the existing acquisition debt is essential to closing the NMTC transaction and to enable the full capital stack to be deployed for the creation of affordable housing and related community benefits as a secondary option if payment of acquisition costs directly in not feasible.
Based on the foregoing, staff finds that extraordinary circumstances exist which justify an exception to the underwriting guideline prohibiting the use of affordable housing funds for refinancing of land acquisition debt more than 24 months old. Approval of this exception will facilitate the successful closing of the NMTC financing and the advancement of the project’s affordable housing objectives without resulting in undue risk or diversion of program resources. Therefore, staff recommends the Board of Supervisors approve an exception to the Multifamily Rental Housing Transaction Underwriting Guidelines to allow the use of Affordable Housing funds for the refinancing of the existing land acquisition debt associated with the Redwood Building Project if payment of land acquisition costs directly is not feasible, based on the finding of extraordinary circumstances as described herein.
Requested Actions:
1. Approve an exception to the Multifamily Rental Housing Transaction Underwriting Guidelines to allow the use of Affordable Housing funds for the refinancing of the existing land acquisition debt associated with the Redwood Building Project if payment of land acquisition costs directly is not feasible, based on the finding of extraordinary circumstances.
2. Adoption of a resolution reserving $2,000,000 of Affordable Housing Funds to assist Community Real Estate Fund LLC with the development of 40 low-income affordable first-time homeownership housing units and authorize the Chair to sign final loan documents.
3. Approval of a Budget Amendment for the following:
a. Increase in appropriations of $2,000,000 in intrafund transfers out (account 57900) from the Affordable Housing Administrative Subdivision (2080-000) using available fund balance, with an increase of intrafund transfers in (account 49900) to the Affordable Housing Projects subdivision (2080-010).
b. Increase appropriation of $2,000,000 in Long Term Loans (account 56500) in the Affordable Housing Projects Subdivision (2080-010) for a loan to develop 40 low-income affordable first-time homebuyer homeownership housing units.
.
FISCAL IMPACT
|
Is there a Fiscal Impact? |
Yes |
|
Is it currently budgeted? |
No |
|
Where is it budgeted? |
If approved, it will be budgeted in Fund 2080. |
|
Is it Mandatory or Discretionary? |
Discretionary |
|
Discretionary Justification: |
There is no mandate to reserve Affordable Housing funds for a specific project. |
|
Is the general fund affected? |
No |
|
Future fiscal impact: |
If approved, loan will be funded in the next 30 days, pending preparation of project loan documents. |
|
Consequences if not approved: |
Project lacks necessary funding to begin construction and NMTC loans may be imperiled. |
ENVIRONMENTAL IMPACT
ENVIRONMENTAL DETERMINATION: The proposed action is not a project as defined by 14 California Code of Regulations 15378 (State CEQA Guidelines) and therefore CEQA is not applicable.