Consideration and Adoption of Resolution No. 2024-31:  A resolution of the Flagstaff City Council, authorizing an amendment to a development agreement for Woodshire on Butler Condominiums. The  Development Agreement is between Woodshire on Butler, LLC, and the City of Flagstaff related to the development of approximately 4.06 acres of real property generally located at 2989 E. Butler Avenue (APN 106-04-007B) and 3001 E. Butler Avenue (APN 106-04-006C). (Woodshire on Butler Development Agreement).
 

1. Read Resolution No. 2024-31 by title only
2. City Clerk reads Resolution No. 2024-31 by title only (if approved above)
3. Adopt Resolution No. 2024-31

State law allows the City to enter into development agreements (DA) by resolution of the City Council and can be amended through through the same process. The developer has proposed an amendment to the DA to increase the area median income (AMI) limit of the eligible buyers from 100% to 125% AMI. Staff agreed to this increase if the current sales price of $368,0000 is held until the remaining affordable units have sold. Staff also suggested greater flexibility on the maximum housing ratios on future purchase contracts and two one-year extensions to complete the remaining sales. 

No financial impacts are anticipated with this development agreement.

Council Goals
Economic Development - Grow and strengthen a more equitable and resilient economy.
Affordable Housing - Support development and increase the inventory of public and private affordable housing for renters and home buyers.

Team Flagstaff Goals
Strategic Priority #4 - Work in partnership to enhance a safe and livable 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.

Original Development Agreement (Resolution 2019-18) approved July 2, 2019.

1. Approve the Woodshire on Butler Development Agreement as presented.
2. Approve the Woodshire on Butler Development Agreement with additional, modified, or deleted terms.
3. Remand the Woodshire on Butler Development Agreement back to staff for additional negotiations with Woodshire on Butler, LLC.
4. Deny the Woodshire on Butler Development Agreement.

Sale of City Property to Woodshire on Butler LLC
During site planning for the proposed Woodshire development in the summer of 2018 it was proposed that a .74 acre remnant parcel from the planned Herold Ranch roundabout be sold to the developer to achieve two goals: to increase the number of units in the development from 40 to 50, and to provide secondary access to the development from the roundabout.
The City estimated the property’s value to be $175,000, or $5.40 per square foot based on comparable sales in the area. The city posted an invitation for bid for the sale of the property in January 2019, with a minimum bid requirement of $130,000, or $4.00 per square foot, plus the legal obligation to construct a minimum of five (5) permanently affordable ownership units. Brookfield was the sole bidder and Council accepted the offer in March 2019.  The sale of the property from the City to Brookfield closed on October 1, 2019.
 
Original Development Agreement Details for Affordable Housing
Council approved the original development agreement (DEV-2019-288-AG2) in July 2019 via Resolution 2019-18. The development agreement identifies the following affordable housing requirements:

• The Developer will provide five (10% of 50 units) permanently affordable housing units to households earning up to 100% AMI.
• Developer must finance the cost of construction for the affordable units
• Affordable units shall be comparable in construction quality and exterior design to the market rate units
• Developer will work to ensure the units are dispersed throughout the project
• Each unit shall be priced a minimum of 20% less than fair market value per square foot of comparable units, with qualified buyers spending no more than 30% of monthly income on mortgage payments.
• Affordable units shall be two bedrooms
• Units shall be constructed and offered for sale within 5 years from the date the property is sold.
• City will provide income qualification of homebuyers and education services for qualified buyers.
• The City will develop a mutually agreeable deed restriction for the affordable units.

Status of the Affordable Units
The construction process at Woodshire was greatly impacted by the COVID-19 pandemic-era labor challenges, increases to the cost of materials, and delivery delays. The initial affordable sales price was about $275,000, or 20% less than the market rate pricing of +$330,000. The affordable sales prices increased by roughly $100,000 since the initial units were offered for sale in 2020. The current pricing on the affordable units is $368,000.
The latest challenge has been rising interest rates and the cost that adds to a monthly housing payment. The DA currently restricts the housing payment to 30% of the eligible buyer’s monthly household income with no exceptions.
Of the five required affordable ownership units, only one has been built and sold to date. Housing staff have seen fairly consistent interest in the affordable units from eligible buyers since 2020, but the ability of eligible buyers to enter into a successful purchase contract has been hampered by the issues discussed above. Two purchase contracts for affordable units were secured between 2021 and 2022. The first purchase contract withdrew due to construction delays and rising interest rates. The second purchase contract did close escrow in September 2023. There have been no new purchase contracts since May 2022. Since Brookfield partnered with Da Vinci Realty to list the remaining four units on the multiple listing service (MLS) in February 2024, there has been an uptick in inquiries about the affordable units.

DA Amendment Proposals
In September 2023 City staff received Brookfield's initial proposed amendment, which was an in-lieu payment of $25k per undelivered unit, totaling $100K. Staff rejected the offer and proposed a new amount based on the price differential of the market rate units and the required 20% less than fair market pricing for the affordable units.
Typical Market Rate price (per Zillow listing): $460,000
Required Price Differential = 460K x.2 = 92,000
Affordable sales price = 460,000 – 92,000 = $368,000
Price differential of 92,000 x 4 unsold units = $368,000
 
Brookfield did not agree with the $368K in-lieu fee amount and began coordinating with DaVinci Realty company in January 2024 to get the remaining unsold units listed (both market rate and affordable).
Brookfield proposed in February 2024 to reduce the sales price of two of the four remaining affordable homes to $275,000 and allow the other two units to be sold at market rate. Staff rejected this offer.
Brookfield then proposed to increase the purchasing power of the eligible buyers from 100% to 125% AMI. For reference, the 2024 125% AMI limit for a household of 4 is $135,750, up from $108,600 (100% AMI). Staff agreed to this increase if the current sales price of $368,0000 is held until the remaining affordable units have sold. Staff also suggested greater flexibility on the maximum housing ratios on future purchase contracts and two one-year extensions to complete the remaining sales. 

Livable Community by actively supporting attainable and affordable housing through the City’s 10-Year Housing plan as well as other projects and opportunities. Create 1: Incentivize the creation of affordable units through various programs and mechanisms.

Regional Plan
Goal NH.3. Make available a variety of housing types at different price points, to provide housing opportunity for all economic sectors.

None