HomeMy WebLinkAbout2011-05-03 Board of Selectmen PacketAffordable Housing Allocation Plan
April 26, 2011
Pursuant to Article 24 of the 2011 Annual Town Meeting, an Affordable Housing Trust
Fund Allocation Plan for the Fiscal Year 2012 in accordance with the provisions of
Chapter 140 of the Acts of 2001 is as follows:
Available Balance — Unrestricted Funds: $458,017.68
Available Balance — Restricted Funds $ 0
a. Unrestricted funds shall be used for the following purposes:
90% for constructing affordable housing; including loan and grant programs
9% for maintaining and improving affordability of existing housing stock
1 % for administration of the Affordable Housing Trust Fund
b. Restricted funds received into the AHTF for designated purposes from grants,
gifts, donations, or the like, shall be allocated at 100% towards the stated
purposes.
Session Laws: CHAPTER I'ER 140 of the Acts of 2001 Page 1 oC 1
Print
Acts 2001 CHAPTER 140 AN ACT AUTHORIZING THE TOWN OF READING TO ESTABLISH AN
AFFORDABLE HOUSING TRUST FUND. (see House, No 4235) Approved by the Acting Governor,
November 21, 2001
Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the
same, as follows:
The town of Reading may establish a separate fund to be known as the Affordable Housing Trust Fund for the purpose
of creating or preserving affordable housing by the town of Reading, the Reading Housing Authority or a housing trust,
community development corporation or similar entity created under the laws of the commonwealth for the purpose of
creating, maintaining or operating affordable housing,
All expenditures from the fund shall be used for low or moderate income housing as defined in section 20 of chapter
40B of the General Laws. The funds may specifically be used to;
(a) purchase and improve land;
(b) purchase dwelling units;
(c) develop new or rehabilitate existing dwelling units for purchase or rental by low and moderate income housing
purchasers or tenants; and
(d) preserve existing subsidized housing inventory as maintained by the department of housing and community
development pursuant to said chapter 406,
Expenditures shall follow an allocation plan submitted by the board of selectmen annually to town meeting at the
annual town meeting, and approved by town meeting. The allocation plan may be amended by town meeting at any
special town meeting. The board of selectmen may request the advice of the Reading Housing Authority, the community
planning and development commission, and others in developing any allocation plan. The allocation plan shall be a
general plan of how funds from the fund will be expended over the next fiscal year, and a report on how funds were
spent during the previous fiscal year.
All expenditures from the fund, including funds for capital purchases of land or buildings, shall be in accordance with the
allocation plan and approved by a majority vote of the full combined memberships of the board of selectmen and the
Reading Housing Authority.
The fund may also be the repository of any allocation for affordable housing purposes made under chapter 446 of the
General Laws, if the town votes to accept sections 3 to 7, inclusive of said chapter 446.
The town treasurer- shall be the custodian of the fund and shall invest the funds in the manner authorized by sections
55, 55A and 55B of chapter 44 of the General Laws. Any income or proceeds received from the investment of funds
shall be credited to and become part of the fund.
Approved November 21, 2001.
littp:// www. malegislature.g ov/ LaNvs ,'Sessionl.a�Ns;!Acts,'200t Chapter]4Oil"rint 2 %2;2011
Memo
To: Peter Hechenbleikner
cc: Jean Delios
From: Paul M. Ognibene
Date: March 30, 2011
Re: $400,000 Housing Trust Grant
Peter:
Despite numerous delays to the closing which was previously anticipated to be in December, we
finally secured debt financing last Friday and are now ready to formalize our grant request.
As a follow -up to our phone conversation from earlier today, I've prepared this memo to address
point -by -point the various questions raised by Ilousing Partners, Inc.
Z What is the project.
Our development plans call for demolishing the former Atlantic Supermarket and
redeveloping the site into a mixed -use development consisting of 53 residential units, 20,000
square feet of retail space, and a 75 -space underground parking garage.
2. What are the sources of funds to develop the project.
The current project pro -forma budget estimates $18.3 million in total development cost
(please see attached, `Budget Overview "), up from the $18.0 million estimated in October
2010. The project will be capitalized as follows:
$ 4.9 million 27 °,'o Equity (Developer / Partners)
$13.0 million 71 % Debt (Enterprise Bank)
$ 0.4 million 2 % Grant (Town of Reading)
$18.3 million
As no additional equity or debt is available to us, the Town's contribution is an essential
component to the project's viability. Without it, the project would be unable to proceed.
3. Is the residential component rental, condominium, or both?
When we initially put the parcel under agreement, we had intended the project to be for -sale
condominiums. Subsequently, the market shifted dramatically in favor of rental units.
Today, condominiums are gradually gaining momentum again.
We've designed the building with premium finishes with the intention of selling the units as
condominiums but will reevaluate where the market is in a year from now. From a pro -
forma perspective, we've underwritten the units from both a rental and for -sale
condominium perspective.
4. What is the breakout of building costs and how were they derived?
Hard construction costs are estimated to total $12.9 million and were derived by our general
contractor / estimating department. Specifically, costs are estimated as follows:
Site $ 0.90 million (actual GC estimate)
Parking / Foundation $ 2.25 million (estimated @ $30,000 /space)
Retail $ 2.00 million (estimated @ $100 pso
Residential $ 7.75 million (approx $120 psf— modular construction)
Total $12.90 million
5. What comes under the category of neighborhood improvements?
We've allocated $50,000 toward enhancements to the adjacent municipal parking lot. These
expenses are now included in the GC budget.
6. What is the 1CVO fee?
The operating entity, Oak -RjF 30 1Iaven LLC, has signed a development agreement with
KNO I1,C. In exchange for the fee, KNO will provide various development services.
7. What are the debt financing terms?
We have a $13.0 million construction loan facility with a 24 -month maturity; interest only
payments; prime plus 1.00 °,o with a 5.00','o floor.
We have the option to extend into permanent financing for an additional five years; principal
and interest payments based on a 25 -year amortization; FHLB rate plus 2.75% with a 5.75%
floor.
We have a written commitment from the Massachusetts Housing Partnership (MHP) to
provide alternative permanent financing (less principal / better amortization. and lower
interest rate).
Completion of the project and repayment of all debt has been guaranteed by the three KNO
partners, .-Arthur Klipfel, Gwen Noyes, and Paul Ognibene.
Regarding finance - related charges, the bank's commitment fee was $130,000 and commercial
mortgage brokerage fees totaled approximately $200,000.
8. What is the Operating Budget?
Please see attached pro -forma operating budget from which the bank performed its
underwriting.
9. How valid are the rents?
Pro -forma rents are based on the bank's appraisal and our own assessment. \YG'e believe that
the forecasted rents are representative of the market and have backed our convictions by
investing nearly $5 million into the project.
10. Will tenants pay their own utilities?
Yes, both market -rate and affordable tenants will pay their own electricity and gas bills.
Water will be provided by the Landlord.
04- 26 -'11 08;37 FROM- Oaktree Development 16174916004 T -012 P0003/0004 F -067
OAK -RJF 30 Haven LLC
Budget Overview
Flnanca
Resding Budipal
Acqulsdon
�.rarr i
Broker
ON
Closing Costs Mtec
7,000.00
I.cgal
12,000.00
Moody
2,524.000.00
Trust Funds
0,00
Acpulstlon - Other
0.00
Total Acquis110n
$ 2,647,000,00
Flnanca
Appraisal
10.000.00
Bank Conurglrocnl F¢a
130.000.00
Bank lnsp etImS
14.000.00
Totallnjorosl Espcaso
463.500.00
MHP
22,000.00
MHP Aotmbumomml
. 22,000.00
Mortgage brow
ods oco.00
Deel
08400.00
Equity
110.090.00
Mortgage broker - Other
0.00
T0121 Mor10200 broker
210,000.00
Finance •P1I10r
0.00
Total Roams
S 1,033,500.00
Hard Coil
Told Hard Cost
$ 12,py2,417,00
Soft Goats
AceounUng
45,000.00
Total ArchRcelUre +MEP(Gt&w)llne)
5110,010.00
CNII Englnoodno
24.1100,00
Contingency
35.900.00
oovelopowl Fees
ods oco.00
Envnonmofttal CtMIri erMg
7.400.00
Gootochalcal EnOlneoAnO
27.400.00
Inspecting Eltglo"lljel In M
mad
Insurance (Owners)
82.501.09
Wndst:ape 066186
5,oao,09
Lease Up C0010
116,000.00
Total Legal
58.100.00
Marketing
50,000.00
O1horConsultants
10,000.00
PIO- COUHruslleh UUB11as
6,00040
Property Taft
30.215.00
lillum
19.000.00
Traffic EnWasod6U
•1,100.00
Soli Qosls • 9Uler
0.00
Taal Soft costs
S 1,752,395.00
Total Expanse $ 18,305,31z.00
'Confidential'
Re.1ding Preforma.03302011,Town Shectl
3/31/2011 Paget oil
04- L6 -'11 08:37 FROM- Oaktree Development 16174916004
30 Haven Street
Readlag, Massachusetts
56 Units & Retail
Proformn Operating Staternent
T -012 P0004/0004 F -067
Gross Residential Income:
2.50 %, $28,905
/Unit
Market Residenliai Income:
$1,024,800
$18,300
Affordable Residential Income:
$158,088
$2,823
Market Residential Vacancy:
5.000/, ($51.210)
W)1i)
Affordable Residential Vacancy:
2.50% ($3.952)
(S71)
Total Rental Income:
$1,127,096
$20,137
Parking Income:
. $28,500
$509
Effective Gross Income:
$1,156,196
$20,646
Less: Operating Expenses:
Management Pee:
2.50 %, $28,905
$516
Administration:
$5,288
$94
Repairs & Maintenance:
$34,240
$611
Utilities:
$41,440
$740
Water & Sewer:
$19,600
$350
Real Estate Taxes:
$170,000
$3,030
Insurance:
$31,420
$561
Janitorial.
$23,100
$413
Landscaping:
$5,650
$101
Reserve.
$11,20()
$200
$370,843
$6,622
Net Operating Income:
/SI
tetail Income: $412,000 $20.60
tetail Vacancy: 10.00'%, (s.11?1m) ($2.06
Wail Net Operating Income: $370,800 $18.54
HOUSING PIER'FNI?RS, INC.
142 Galen Street - Suite B ' Watertown, NIA 02472 ' (617) 924 -7240 • Fax (617) 924 -7168
Marvin M. Siflinger, Chairman
FIcanor G. White, President
Charles S. Fisenberg, l,.isenbcrg Consulting: Affiliate
To: Peter Hechenbleikner and Jean Delios
www.housingpartncrsinc.com
msifling@housin�Tartnersinc.com
cwhitc @housingpartncrsinc.com
ceisenbergL &housingpartncrsinc.com
Town of Reading
From: Charles Eisenberg, Eleanor White and Marvin Siflinger
Housing Partners, Inc.
Date: April 11, 2011
Subject: READING HOUSING TRUST GRANT
Analysis Prepared by Housing Partners, Inc.
INTRODUCTION
For many years, the Town of Reading has been attempting to implement
strategies which would improve the downtown business district. This culminated
in the recent establishment of a Smart Growth Overlay District under the
provisions of Chapter 40R. While that process was underway, Oaktree
Development, LLC of Cambridge, MA optioned the Atlantic Supermarket site at
30 Haven Street in Reading and began the redevelopment process.
Oaktree has now requested that the Town provide a $400,000 grant to assist in
the redevelopment of this site. It is their contention that without this grant the
project is not feasible. The Town, in turn, has asked Housing Partners, Inc. (HPI)
to determine if this request is justified.
As will become clear, HPI believes that the pro forma assumptions and
projections are reasonable, that the developer has proposed a reasonable
amount of profit, and that this project represents the type of development
envisioned by the Town when it passed the Chapter 40R District. However, we
also feel that the Town should benefit if this project is successfully developed and
that any financial contribution should be repaid, if possible, to be available to spur
other development projects in the future.
PROJECT DESCRIPTION
30 Haven Street is a .78 acre parcel of land at the southern end of Haven St.,
within a block of the Reading MBTA commuter rail station. It currently houses the
Review of Oaktree Development Pro Forma for Reading Site
By Housing Partners, Inc.
April, 2011
Page 2
vacant Atlantic Supermarket. The parking lot located in the rear is owned by the
Town of Reading.
Oaktree proposes to demolish the existing structure and build a new, four -story
building. An underground parking garage will contain 75 spaces. The first floor
will have 20,000 square feet of retail space as well as the residential entrance
and common space. Above the first floor will be three residential floors containing
almost 60,000 square feet. While the October, 2010 appraisal anticipated fifty -six
one and two bedroom rental units, the current plan may be developed either as a
rental property or as condominiums. The financial projections provided to HPI by
Oaktree were for a rental property.
In accordance with the provisions of the Chapter 40R Smart Growth District
zoning, eleven of these units (20 %) will be affordable to moderate income
families. Moderate income is defined as households earning less than 80% of
the Boston SMA (Area Median Income as annually established by the U. S.
Department of Housing and Urban Development).
The building will be steel -frame construction and will be serviced by several
elevators. Finishes will be of a high enough quality to accommodate a plan to sell
the units as condominiums either upon completion or at some future date.
According to the Bonz appraisal report, the 32 one - bedroom units are planned to
be 820 square feet while 24 two - bedroom units will be 1,385 square feet.
According to a March 30, 2011 memo from the developers to the Town Manager,
they will also allocate $50,000 towards the enhancement of the adjacent
municipal parking lot.
HOUSING PARTNERS. INC. METHODOLOGY.
The following report and its conclusions are based upon the information made
available to us by the Town and the Developer. This consists primarily of an
appraisal prepared in October, 2010 by Bonz and Company, Inc. as well as
information provided by Oaktree in a memorandum (which included a set of
financial projections) to the Town Manager dated March 30, 2011.
HPI has reviewed the appraisal and the memorandum; and has analyzed both to
determine their accuracy. Due to the extremely short timeframe available for this
analysis, we have not done any project- specific independent research to verify
our conclusions, but have based them solely on prior knowledge of the area and
our general knowledge and experience.
In order to determine whether or not the feasibility of this development is
dependent upon the $400,000 grant, we first evaluated the assumptions and
Review of Oaktree Development Pro Forma for Reading Site
By Housing Partners, Inc.
April, 2011
Page 3
conclusions in four general categories: market; cost, financing and profitability.
We then did some additional financial analysis to verify the projections provided
to us, test their impact on feasibility over time and to determine how sensitive the
results are to variation from the projections and assumptions provided.
ANALYSIS
Cost
Several months ago Oaktree provided the Town with a set of financial
projections. In the previously cited current memorandum these were recently
revised. As currently proposed, the Total Development Cost of the project will be
$18,305,312.
The acquisition price of $2,647,000 is appropriate and $1,100,000 less than the
"as -is" value stated in the Bonz appraisal. A single number ($12,872,417) is
provided for the hard costs (which presumably includes a 5% contingency of
approximately $642,000). This equals $161/SF (not including the underground
parking), which is quite reasonable for a steel frame building.
Soft costs of $1,752,395 also appear to be reasonable. They include an
appropriate development fee of 689,000, which equals 4% of TDC.
In addition, there are Finance Fees and Mortgage Broker fees for Debt and
Equity. The Finance Fees are reasonable for the size of the construction loan.
Mortgage broker fees are $98,000 for the Debt and $116,000 for Equity. There is
no information identifying who received these fees or the services for which they
were paid.
While more detail would have been useful, the Total Project Cost and major line
items are reasonable for the planned project.
Market
According to the Developer, the rents and rent -up assumptions used for their
projections were based upon the Bonz appraisal as well as their own
assessment. Our analysis of the Bonz appraisal found it to be competent,
complete and consistent with other market studies and reports. Rent rates,
capture rates and absorption estimates were based upon well - prepared
disaggregated demographic forecasts and the analysis of realistic comparables.
In addition, while the report is six months old, the market has not changed
significantly since it was prepared.
An examination of the 30 Haven Street development indicates that the
Developer's plans are consistent with the Bonz appraisal and competitive within
Review of Oaktree Development Pro Forma for Reading Site
By Housing Partners, Inc.
April, 2011
Page 4
the Primary market area. This applies to rents, rent per square foot, unit size and
amenities. The location in downtown Reading is untested for this product and
price point, but the anticipated absorption rate as reflected in the lease -up budget
takes this fact into account.
Based upon our evaluation, the market assumptions used for this project and its
financial projections are reasonable at this time.
Financing
Oaktree has proposed that 30 Haven Street be financed with $4,900,000 of
equity, $13,000,000 of construction loan, and a $400,000 grant from the Town.
The construction loan can be extended into a permanent loan with a five year
term, a 25 year amortization period and a rate that today would be 6.75 %.
Alternatively, the Developer also has a commitment from the Massachusetts
Housing Partnership "...to provide alternative permanent financing (less
principal /better amortization and lower interest rate)." From the information
available to HPI, there is no clear rationale for the selection of financing source.
The debt/equity ratio is normal for the current financial market as is the interest
rate. Presumably the permanent financing has not been locked in because either
the Developer believes he can get better terms at some time in the future or due
to the uncertainty as to whether the units will be rented or sold.
Return on Investment
Presuming the cost, market and financing projections are reasonable, the need
for the $400,000 grant would be justified either because the Developer cannot
raise those funds from other sources or because adding it to the equity
contribution will render the projected project return on investment unacceptable
to the investor.
While we understand that the Developer has stated that the last $400,000 cannot
be raised from the lenders or investors, no corroboration has been provided. In
addition, while 20% of the units will be affordable, the Developer does not appear
to have made a serious effort to acquire the $400,000 from State or Federal
sources who routinely provide grants for such projects.
To determine the impact on profitability, HPI ran some financial models testing
sensitivity. For assumptions, we used the Oaktree pro forma: $18,300,000 in
project cost, $785,353 residential net operating income; $370,800 commercial
net operating income; and a five year, $13,000,000 balloon loan with a 25 year
amortization period and a 6.75% interest rate. We then ran cash flow models (for
a rental project) with a sale at the end of the fifth year of stabilized operations.
Review of Oaktree Development Pro Forma for Reading Site
By Housing Partners, Inc.
April, 2011
Page 5
To determine the sale value, we applied a capitalization rate to the fifth year net
operating income (presuming a 2% increase per year) derived by blending the
residential and commercial capitalization rates contained in the Bonz report in
appropriate proportions, and deducted the outstanding debt.
The result was a Return on Equity of 5.85% and an Internal Rate of Return of
30.5 %. The ROI is relatively low for a project of this type while the IRR is
relatively high. This reflects the fact that most of the value in this pro forma
comes from the sale of the property at the end of the fifth year rather than from
the interim cash flows.
If instead of receiving a $400,000 grant from the Town, the equity contribution
were increased by $400,000 (something which it is important to note that the
Developer insists is not possible), the ROI drops to 5.4% and the IRR to 28.35 %.
It is critical to recognize that these projections are only as good as the
assumptions on which they are based and the amount of data available. In this
case, the available data was minimal and the estimated sales price, which
accounts for so much of the Internal Rate of Return, is the most speculative part
of the analysis.
Risk
This analysis must account for two kinds of risk: timing and market. This analysis
is being done based on estimated construction costs, projected rents and
absorption periods and estimated operating costs. The construction cost may be
higher (or lower) when an actual contract is signed and real rents and operating
costs may be quite different when the project is actually completed. The longer
the period of time between the projections and stabilized operation, the greater
the uncertainty; and thus the risk.
The other risk in this project is the market risk. Particularly as regards the
residential units, this is the first project to test the downtown Reading market for
units of this type in this price range. All the comparables in the Primary market
area are in more suburban locations. While projects of this type have been
successful in similar locations, 30 Haven is something of a first mover.
Thus, in a fluid and uncertain environment, the Town of Reading is being asked
to assist the developer in managing the overall risk entailed in developing this
site. As shown in the conclusion, HPI believes that this is not an unreasonable
request, as long as the Town is positioned to receive some benefit if the project
is —as the Town hopes — successful. In that situation, the funding should be able
to be revolved to support further priority development in Reading.
Review of Oaktree Development Pro Forma for Reading Site
By Housing Partners, Inc.
April, 2011
Page 6
CONCLUSION
Based on the information available, HPI cannot conclude decisively that 30
Haven "needs" a $400,000 grant from the Town of Reading. We note that none
of the information provided indicates that the Developers or investors will receive
an unreasonable profit; it is also difficult to conclude at this time that the
$400,000 is critical to project feasibility. At this stage in the project process, a 2%
difference is well within the range of uncertainty which must be applied to the
projections. However, as the first project proposed under the provisions of the
Smart Growth Zoning District and the first residential project to be developed in
downtown Reading in several decades, a public contribution would not be
inappropriate if, as stated above, the Town will also benefit if the project
succeeds. We will be working with Town staff to work out repayment terms that
will assure that the Town benefits and that funds will be available if possible to
support development in future years.
HPI therefore recommends that the Town of Reading provide the project with a
$400,000subordinate loan. This loan should be the last funding contributed to the
project, and its remaining in the project following completion should be contingent
upon an independent cost certification by a recognized expert. Further, in the
event of default, the loan would be payable without any accrued interest. In the
event of project success, however, the loan and accrued interest should be
required to be repaid upon sale or refinance if a rental project, or from the
proceeds of the last two condominiums sold if a for -sale project. Finally, the loan
should have a term of ten years, at which time the principal and interest should
be due and payable.
Hechenbleikner, Peter
From: Tim Kelley [timothyjkelley @verizon.net]
Sent: Tuesday, April 26, 2011 10:46 AM
To: James Bonazoli forwarding account; Steve Goldy forwarding account
Cc: Reading - Selectmen; rhalynw @verizon.net
Subject: Article 24: Affordable Housing Trust Fund Allocation Plan
Dear James:
I am writing to express my concern with the AHTF Allocation Plan article on the Town Meeting
Warrant. Specifically, I am concerned that the Housing Authority was not consulted or informed
about the Warrant Article. I found out about the article when I reviewed my Warrant yesterday
evening before Town Meeting.
The Housing Authority, as an equal voting entity with the Selectmen, needs to be included in the
process of establishing whatever Allocation Plan is to be considered. Also, the Housing Authority
needs to be included (or at least informed of) negotiations with developers seeking the AHTF funds.
We were notified about a joint meeting that was scheduled some months back whose purpose would
have been to vote on granting funds to Oaktree. I was unsettled by that, due to the lack of
information. The Housing Authority asked for information to be provided and we were told that
Oaktree had not then provided the financials. That initial meeting was postponed and not
rescheduled. To my knowledge this was the last word the Housing Authority had with regard to
Oaktree seeking AHTF funds.
My complaint has nothing to do with the merits of Oaktree's proposed development. I have no
information either way. My dissatisfaction is with the process.
I ask that this matter be indefinitely postponed until a later Town Meeting so that the Housing
Authority may be included in the process of discussing the Allocation Plan.
I am speaking as an individual Board Member of the Reading Housing Authority and a Town Meeting
Member. I am not speaking on behalf of the RHA. This specific matter has not been discussed by
the RHA Board.
Thank you for your attention and cooperation.
Tim
Timothy J. Kelley
Attorney at Law
One Pleasant Street, Suite 5
Reading, MA 01867
(781) 942 -9838
Fax (781) 942 -0904
timothyjkelley@verizon.net