Consideration and Adoption of Resolution No. 2014-08:  A resolution authorizing the City of Flagstaff to provide up to two-hundred forty-five thousand dollars ($245,000) to Cedar Crest/Flagstaff LP, or its successor, as a Local Government Contribution for a Low Income Housing Tax Credit Acquisition/Rehabilitation Project of the apartment complex currently known as Mountainside Village under the Arizona Department of Housing ("ADOH") 2014 or 2015 Qualified Allocation Plan. (Authorization to change the terms of a loan previously made for affordable housing.)

At the April 16, 2013 City Council meeting Resolution 2013-09 was approved authorizing the City of Flagstaff to provide up to two-hundred forty-five thousand dollars ($245,000) to Mountainside Village/Flagstaff LP as a Local Government Contribution as detailed in the Arizona Department of Housing's 2013 Qualified Allocation Plan (QAP).  The 2013 application for an award of Low Income Housing Tax Credit (LIHTC) funding by Mountainside Village/Flagstaff LP was unsuccessful. The 2014 QAP for the LIHTC program from the Arizona Department of Housing (ADOH) again awards points to any project in which a Local Government with a population of less than 550,000 provides new funding towards the development budget. A new development partnership, Cedar Crest/Flagstaff LP, has been formed to present an application for the same project as 2013, thus necessitating a new resolution.  The proposed project is the acquisition and rehabilitation of the complex currently known as Mountainside Village Apartments, an existing LIHTC complex in the Sunnyside Neighborhood. Ultimately, if the application is successful, this will result in an extended required affordability period for the complex and a substantial rehabilitation of the eighteen-year-old units.  While the QAP is published annually, it is relatively consistent from year to year; thus it is reasonable to expect the Local Government Contribution scoring category will also be contained in the 2015 QAP. 

The current $345,000 mortgage will be paid in full to the City and the City will reissue $245,000 in debt to Cedar Crest/Flagstaff LP.  The $100,000 difference will be deposited into the housing fund for other affordable housing objectives. Interest on the $245,000 loan will be paid annually, based on cash flow available as determined by an independent auditor at an annual rate of 3% for the 30-year life of the loan.

  5. Retain, expand, and diversify economic base
11. Effective governance

• June 7, 1994 - City Council approved Ordinance No. 1837 authorizing the sale or lease by the City of the property where Mountainside Village is now located
• December 6, 1994 - City Council approved a development agreement and mortgage agreement between the City of Flagstaff and the Flagstaff Affordable Housing Limited Partnership for the sale of city land and the development of 80 units of affordable rental housing
• March 8 and May 8, 1995 - City Council approved an amendment to the development agreement and mortgage agreement between the City of Flagstaff and the Flagstaff Affordable Housing Limited Partnership
• April 27, 2009 - City Council approved amendments to the Promissory Note, amendments to the Subordination Agreement and a Waiver of a Right of First Refusal permitting a refinancing of the property at lower interest rates and additional funds for rehabilitation.
• April 16, 2013 - City Council approved Resolution 2013-09 authorizing the City of Flagstaff to provide up to two-hundred forty-five thousand dollars ($245,000) to Mountainside Village/Flagstaff LP as a Local Government Contribution as detailed in the Arizona Department of Housing's 2013 QAP. 

• Approve Resolution 2014-08 - Will have the effect of strengthening an application for an Acquisition / Rehabilitation LIHTC application
• Amend Resolution 2014-08 - Will have the effect of not providing support for and additional points in an application for Acquisition / Rehabilitation LIHTC
• Reject Resolution 2014-08 and not provide a Local Government Contribution

City Council approved Resolution 2013-09 in April of 2013, encompassing the major elements also contained in this proposed resolution.  Resolution 2014-08 reflects a change in the name and membership of the development partnership, a change in the name of the complex, and, if approved, will allow the new development partnership, or its successor,  to also apply for the 2015 LIHTC round if unsuccessful in 2014.  No other elements have been changed.

In addition to the 2014 LIHTC application, the Owner/Applicant, Cedar Crest/Flagstaff LP, is applying to the Federal Home Loan Bank (FHLB) of San Francisco for Affordable Housing Program (AHP) funding.  The FHLB requires a nonprofit corporation to have at least a 51% interest in the General Partner.  A representative of Cedar Crest/Flagstaff LP states: "We have found that having the nonprofit with a 100% interest in the General Partner initially for the AHP application makes life simpler.  The Board of Directors of National Affordable Housing Foundation require National Consulting Alliance, Inc. to be involved with it as a Co-developer – both are based in Des Moines."  Additionally, both entities have a successful history with LIHTC funding and development, including local Flagstaff involvement in the development of High Country Estates, recently completed in December 2013 and fully occupied by the end of January 2014.

The LIHTC Program, which is based on Section 42 of the Internal Revenue Code, was enacted by Congress in 1986 to provide the private market with an incentive to invest in affordable rental housing.  Federal housing tax credits are awarded to developers of qualified projects.  Developers then sell these credits to investors to raise capital (or equity) for their projects, which reduces the debt that the developer would otherwise have to borrow.  Because the debt is lower, a tax credit property can, in turn, offer lower, more affordable rents.

Provided the property maintains compliance with the program requirements, investors receive a dollar-for-dollar credit against their Federal tax liability each year over a period of 10 years. The amount of the annual credit is based on the amount invested in the affordable housing.
According to the Arizona Department of Housing, it has been the most successful rental housing production program in Arizona to date, creating thousands of residences with very affordable rents.
 
Mountainside Village Apartments is an existing 80-unit apartment complex financed under the LIHTC program providing rental housing to households at or below 60% of the Area Median Income (currently $37,300 for a household of four).  The 5.5 acre site where Mountainside Village Apartments is located was purchased from the City in 1994 for the appraised value of $345,000.  At that time, the City provided a loan for the purchase price of $345,000 for 30 years, at 3% interest, payable interest-only each month.  Construction of the complex was completed in 1996 and consists of 50 two-bedroom units and 30 three-bedroom units.  There are eight (8) apartment buildings, containing ten (10) units each and one office/laundry/maintenance shop.
 
There were several amendments to the development agreement and the mortgage documents in the first year after the initial execution.  These were primarily administrative, as the agreements were executed prior to the tax credits being awarded, the main financing and construction of the project being completed.  The subsequent actions required the base documents to be amended several times in order to accommodate the changing conditions of the site and financing.
 
The 2009 refinancing of the project provided for rehabilitation of the project including new, more durable cabinetry in all units, new energy efficient hot water heaters, and other interior upgrades.

While most of the projects Council has become previously familiar with under the LIHTC program have resulted in new construction, there is also a provision within the QAP for the acquisition/rehabilitation of multifamily developments.  A new development partnership, Cedar Crest/Flagstaff LP, is proposing to purchase the development from the current owner.  After acquiring the property, a substantial rehabilitation of the exteriors and interiors of the existing eight (8) apartment buildings and the office/laundry/maintenance shop will be undertaken.  The existing office and laundry will be remodeled and expanded and the existing maintenance shop will be relocated into a newly constructed and expanded maintenance/storage facility.  Additionally, a new community center, with a manager’s unit on the second floor, will be constructed.  Currently, there is not a community center located at Mountainside Village.

The LIHTC process is highly competitive and the 2014 Qualified Allocation Plan (QAP) from the Arizona Department of Housing awards points to any project in which a Local Government with a population of less than 550,000 provides new funding towards the development budget. If credits are not awarded in this round, Cedar Crest/Flagstaff LP intends to submit the application again in the 2015 QAP round. 

The request of the City of Flagstaff from Cedar Crest/Flagstaff LP is for a loan of $245,000 in order to strengthen the application.  While the City has not previously worked directly with this LP before, the City has successfully worked the co-developers on the High County Estates project and has worked with an additional party also involved with the LIHTC application, WESCAP Inc., on numerous occasions.  The loan is contingent on tax credits being awarded in either 2014 or 2015. 

Mountainside Village has already been in service as a tax credit property for eighteen (18) years and this acquisition / rehabilitation project will renew the affordability period of the project for another thirty (30) years.
 
Rent Structure and Population Served
As a LIHTC projects rents are affordable to households earning at or below 60% AMI (currently $37,300 for a household of 4).  Currently, under the Development Agreement with the City of Flagstaff, all units within the project are affordable to households at 60% AMI or below with rent either $11 or $14 (depending on bedroom size) below the required rent structure for a LIHTC project. Completion of the acquisition/rehabilitation project will provide rents targeted to households with incomes even lower than the 60% households it now serves.  The chart below is reflective to the unit count and rent breakdown the project will serve if the LIHTC are awarded:
 

Number of Units	% of AMI Served	Rent for 2 Bedroom	Rent for 3 Bedroom
24	40%	$449	$493
32	50%	$588	$654
24	60%	$728	$816
1	Manager’s Unit
81 Total Units

 
 Scope of Project
After the project is acquired, a substantial rehabilitation will be undertaken.  While the list below encompasses the major components of proposed improvements, it is, nevertheless, a partial list.

• Addition of a 2300 sq.ft. Community Center with meeting space, including a kitchen, exercise room and second laundry room on the first floor and a manager’s unit on the second floor
• Addition of a playground
• Site improvements to address drainage issues
• Landscaping
• Re-paving of all parking surfaces
• Existing office and laundry will be remodeled and expanded
• Addition of maintenance/storage facility 
• Exterior
  • 40-year shingles and underlay
  • Energy efficient windows
  • Re-insulate exterior and attics with higher rated insulation
  • Addition of concrete siding
• Interior
  • Air handlers
  • Energy efficient plumbing and electrical fixtures
  • Energy efficient appliances
  • Addition of garbage disposals
  • New floor coverings in the units that have not yet received them

Funding for this $245,000 loan request will be made available through the satisfaction of the current $345,000 mortgage held by the City of Flagstaff on the property, and interest will be paid annually, based on cash flow available as determined by an independent auditor, as generated at a rate of 3% per year for the 30-year life of the loan. The $100,000 difference between the repayment of the current mortgage and the new loan, provides income to further other affordable housing objectives. 
 
Funds will not be provided if the developer does not receive a LIHTC allocation from ADOH in either the 2014 or 2015 funding rounds, and if so, not until the property is acquired and the current mortgage is paid off.  Quoted in a letter last year from the requesting party: “The total development cost of this acquisition / rehabilitation project is about $14,467,000, or about $178,600/unit for 81 units.  The City’s contribution of $245,000 equates to 1.70% of the total development budget.”  The existing note holder is current on interest payments to the City. Identical to last year's request, multiple layers of financing are anticipated and the City's loan will be subordinate to the balance of the financing. Functionally, the execution of one or more subordination agreements may be required in order for this to be accomplished.   

The need for additional low-income rental housing is well documented in Flagstaff and is evidenced by the lengthy waiting list maintained by the Flagstaff Housing Authority.  This project will renew the affordability time period for thirty years and add a net increase of one affordable unit.  Additionally, the rehabilitation work and construction of the community center and maintenance facility will provide tax revenue and jobs in the community.

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