AZNORTH Development, Inc. is currently in escrow with Housing Solutions of Northern Arizona, a local nonprofit, for the purchase of the six developer-owned affordable units in the Rio Homes Development. The closing date is currently scheduled for September 30, 2017 and is contingent on the approval of Resolution No. 2017-29, which will authorize this sale.
 
The Second Amendment to the Development Agreement will allow the Rio Homes developer to sell six Rio Homes affordable units to a Qualified Nonprofit Organization, instead of limiting the sale to income-qualified owner occupants.  Unlike owner-occupant buyers, the Qualified Nonprofit Organization will not be required to meet income eligibility criteria for the purchase or upon resale of the properties. Also, the City will not retain a right of first refusal on any properties purchased by the nonprofit.  Because the Qualified Nonprofit Organization is committed to using its resources to provide affordable rental or ownership housing opportunities, these units will still provide a housing benefit to low/moderate income households.

None - all units impacted by the proposed amendment are owned by AZNORTH Development, Inc. and are proposed to be purchased by a nonprofit. There are no City funds to be utilized.

None.

Council Goal: Affordable Housing – Support development and increase the inventory of public and private affordable housing for renters and home-owners throughout the community.
Regional Plan Goal: NH.3. Make available a variety of housing types at different price points, to provide housing opportunity for all economic sectors.

The Rio Homes Development Agreement was approved on November 13, 2003. The First Amendment to the Rio Homes Development Agreement was approved on June 8, 2010.

Approve Resolution No. 2017-29.
Reject Resolution No. 2017-29 and direct staff to re-evaluate the proposed amendment.
Reject Resolution No. 2017-29.

The Rio Homes subdivision is a 153-unit development that originally had 30 units designated as permanently affordable owner occupied homes. The affordable homes were created through a public/private partnership between the City of Flagstaff and AZNORTH Development, Inc. (AZNORTH) in which the City, through a Request for Proposals, sold land to a developer in exchange for both financial consideration and the provision of permanently affordable units.
 
Rio Homes was built in three phases beginning in 2003; the 22 affordable homes in the first two phases were sold to eligible buyers in a timely manner.  Development of the third phase by AZNORTH coincided with the recession, resulting in six of the eight affordable units in the phase remaining unsold by the developer.  These six units are currently being used by the developer as market-rate rentals. Of the original 30 affordable homes, three have been lost from the program due to foreclosures during the national economic downturn and 21 units are owner occupied.
 
This project was developed before the Community Land Trust Program (CLT) was created and the original units used a deed restriction to ensure permanent affordability. Currently, as affordable units are resold they are converted into Land Trust units. Four units out of the 21 owner-occupied units have been converted to Land Trust upon resale so far.
 
The development agreement for this project was designed to provide the City with virtually no active role in the administration of the affordability program or sales of the units. However, as the process has unfolded over time, this has proven to be a challenge and staff has been required to play a consistent role, but is limited in the ability to address issues or develop mechanisms to support homeowners. The original agreement was executed in 2003 then amended in 2010 to allow units to be incorporated into the CLT and include language to incorporate changing lending standards.
 
On April 7, 2017, Housing Solutions of Northern Arizona (HSNA), a local nonprofit affordable housing provider, and AZNORTH entered into a purchase contract for the sale of the remaining six developer owned units. The escrow for this sale has been extended to September 30, 2017 to allow time for Council consideration of this development agreement amendment. The proposed amendments have been discussed at length with AZNORTH and the developer is in support of the proposed changes.
 
There is a substantial need in Flagstaff for affordable housing and this amendment allows HSNA (assuming the sale of the units from AZNORTH to HSNA is completed) to rent and/or sell the units. While the CLT Program is successful, its current focus is only on homeownership.  Releasing these units from eventual inclusion in the program will still provide on-going community benefit as part of HSNA’s programs.

The proposed amendment will assist overall program functionality. The following is a list of the offered amendments and a brief description:
 

1. Affordable Residential Uses – This amendment allows the permanently affordable units to be sold to a Qualified Nonprofit Organization, defined as a tax-exempt organization whose purpose is to provide affordable rental or ownership housing opportunities.
2. Affordable Properties Price Schedule – This amendment exempts the Qualified Nonprofit Organization from the price formula requirements upon resale, as well as other requirements contained in Exhibit K, including the City's right of first refusal.
3. Eligible Buyers – This amendment exempts the Qualified Nonprofit Organization from the income eligibility requirements upon initial sale and resale.
4. Land Trust – This amendment states that if the Affordable Properties are purchased by a Qualified Nonprofit Organization, they will not be incorporated into the City’s Community Land Trust Program.

The offered amendments are intended to improve the function and benefit of the Rio Homes project. Currently, the six developer-owned units are being used as market rate rental housing. City staff has stayed in regular contact with the developer concerning compliance, however full enforcement would have likely resulted in the developer allowing the unsold units to be foreclosed on by the lender, thus negating any possible community benefit. This amendment is timed to coincide with the purchase contract executed between Housing Solutions of Northern Arizona and AZNORTH Development, Inc.

The affordable housing need (both rental and ownership) is well known in Flagstaff and these amendments would provide the opportunity for a Qualified Nonprofit Organization to purchase these units and utilize them for that purpose, thus returning the units to the community benefit originally intended.

The potential amendments have been initiated or discussed at length with stakeholders including:
AZNORTH
Housing Solutions of Northern Arizona
Lenders
Other land trusts and local housing agencies