The Santa Barbara City Council’s Finance Committee unanimously recommended Tuesday that the city facilitate the local Housing Authority’s purchase of a low-income housing complex.
The purpose of the eight-unit Eleanor Apartments, located at 518 E. Canon Perdido St., is to provide affordable housing for very-low-income residents with mental health disabilities.
In order to ensure that the housing project continues to serve the city’s neediest residents, the Housing Authority is requesting that the city restructure the loan the city gave the property nearly 20 years ago so that it can afford to purchase the apartment complex.
In its 3-0 vote, the committee vetted the Housing Authority’s proposal before the full city council makes the final decision.
The apartments are owned by Canon Perdido Associates, LP, which developed the apartments in 1997 under the U.S. Housing and Urban Development Department’s Low-Income Housing Tax Credit program.
The apartments are master-leased to Mental Wellness Center, which provides support services and the tenants.
That 30-year loan totaled $511,000, and after 19 years of accrued interest, Mental Wellness Center’s current balance to the city is $1,103,000 — due in 2028.
The project does not see a positive cash flow, city housing project planner David Rowell said, leaving it unable to make any of its payments.
“The historical use of those original loans — although they were written as loans, they were kind of intended as grants,” Rob Fredericks, the Housing Authority’s deputy executive director, told the committee.
“They had to be written as loans,” he added. “There was no expectation of repayment on those. It was for a community benefit to get these developments built.”
The Housing Authority is currently paying back $25,000 of loans per month on several other projects.
Councilman Gregg Hart told Noozhawk that such favorable terms from the city were necessary for the tax credits to be awarded for the project.
The loan, Rowell said, came from the city’s old Redevelopment Agency, Socio-Economic Mitigation Program funds and the HOME Consortium, which distributes U.S. Department of Housing and Urban Development funds for low-income housing.
With the HUD’s tax credit program’s “compliance period” over, Canon Perdido Associates wanted to sell the apartments to Mental Wellness Center, which went to the city last year to ask for debt forgiveness, both for the loan’s principal and interest.
Mental Wellness Center then asked the city’s Housing Authority to buy the apartments instead, after it couldn’t agree on a selling price with the owner.
The Mental Wellness Center requested to continue operating and managing the apartments “under a favorable master lease agreement.”
Per city documents, any new owner of the apartments has to be a nonprofit like the Housing Authority, which agreed to the Mental Wellness Center’s proposal but had also been unable to agree on a price with the owner, who is asking for $1,725,000.
As part of the transaction agreement with the Housing Authority, the city would forgive all the apartments’ accrued interest, increase the principal by $122,000 to $633,000 and cut the interest rate in half to 3 percent.
Any purchase contract between the owner and the Housing Authority is contingent on the city’s approval of that request, Rowell told the committee.
Rowell also said that the transaction would be seamless for the tenants, and would result in a new 30-year term due in 2046.
The new deal is attractive, he said, because it ensures that organizations with good track records with the city will continue owning and managing the apartments for residents who have the most need for them.
The extra $122,000 in principal, according to a report prepared by Rowell, would come from the city’s Housing Successor Agency Fund, which receives money from outstanding former-Redevelopment Agency loan repayments.
Currently, per an agreement with the city, the property is required to remain affordable for very-low-income residents until 2057. Under this new agreement, it would remain affordable through 2076.
— Noozhawk staff writer Sam Goldman can be reached at sgoldman@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.