That the Housing Authority:
A.  Approve a five-year five percent (5%) annual rent increase at the Authority owned View Park Estates and Park La Habra Mobile Home communities, commencing on January 1, 2024; and,

B.  Approve a Financial Assistance Program for qualified low, very low and extremely low-income households in those parks to help partially off-set the impact of the proposed rent increases.   

In 1992, the La Habra Housing Authority (Authority) purchased the Park La Habra Mobile Homes (Park La Habra) and View Park Mobile Home Estates (View Park) properties for approximately $19 million. The initial purchase was financed through Certificates of Participation (COPs) and that debt has been subsequently refinanced several times since 1992 to lower the interest expense and annual debt service payments. The most recent refunding, in the amount of $11,835,000, was completed in 2020, with a final maturity date in 2040. The current annual debt service payment on this issuance is approximately $735,000 per year.

The Authority has committed funds to various capital improvements and maintenance projects in both parks over the years. The table below highlights a few of the more notable projects that have been completed at the two parks over the past 20 years.

 
Property Management

In addition to maintaining the infrastructure at both properties, the Authority also pays for professional property and asset management of mobile home parks. When the mobile home parks were originally purchased by the Authority, a company called Municipal Management Services was under contract to oversee daily operations. In 2001, the Authority released a Request for Proposals for professional property management services for the mobile home parks. After receiving four proposals, the Authority entered into a one-year Agreement with Santiago Communities (Santiago). The Authority subsequently renewed that agreement several times, and Santiago managed the mobile home parks for seventeen years. 

During their tenure, Santiago initially provided high quality, reliable and professional park management services; however, in the last few years of their agreement, City staff and City Council began receiving numerous complaints from mobile home park residents about the management of the parks. City staff closely monitored the work being done by Santiago and met numerous times with the management team at Santiago regarding concerns raised by park residents, with the intent of improving the service quality to the standard expected by the City. Despite these efforts, Santiago opted to terminate the management services agreement upon a 30-day notice to the Authority, and staff immediately worked on securing a replacement management company.

After reviewing potential property management companies that were capable of operating two large mobile home parks, staff was able to come to terms with Augusta Communities (Augusta) and approved an initial 18-month agreement for asset and property management services for both mobile home parks. At the time of termination, Santiago’s fee to operate the two mobile home parks was $447,470 a year. The amount approved to pay Augusta to provide the same types of services was $590,232 per year, representing an immediate increase in operating cost of approximately $143,000 per year. Since Augusta has taken over property management responsibilities, the City has received very few resident complaints, and those that have been made have been quickly resolved by Augusta’s management team. Staff from the City and Augusta have developed a positive working relationship and the Authority is provided with regular updates regarding operating and maintenance issues at both parks.  
 

Although the cost of operating and maintaining the mobile home parks has increased over time, the Authority has not consistently raised rents to keep up with the cost of operations. The last general rent increase was approved by the Authority ten years ago in 2013.

A history of rent increases over time is described below, and Table 1 shows the year-over-year changes in average rent at the two parks versus the change in the Consumer Price Index (CPI) over that same time.

The current average rent in the mobile home parks is $850 a month, which is in line with the levels established as of the last approved rent increase in 2013. A survey conducted by Augusta shows that the average mobile home park space rent in the region varies between $823 to $1,600 per month. The parks with rents that average on the higher end of the range typically offer larger spaces and enhanced park amenities. The only park that has an average monthly rent that is nearly the same as the two Authority owned mobile home parks is a trailer park which leases small spaces for trailers, not manufactured homes. The Authority's average monthly rent is currently 14% lower than similar monthly space rents in the region.

Based on current and projected operating and maintenance costs, compared to the amount of rent currently being generated at the two parks, the parks are currently operating at a modest annual cash flow deficit, which staff estimates will grow to unsustainable levels within the next three years. While there are sufficient reserves to offset a modest negative annual cash flow, should these operating deficits continue to grow, the Authority will have insufficient reserves to cover operating costs, provide for park maintenance, or maintain the level of reserves required by the COP’s. 

If rents are not increased, the mobile home parks are projected to have a negative annual cash flow of approximately $276,764 during Fiscal Year 2023-2024, which would grow to a negative annual cash flow of approximately $558,167 by the end of Fiscal Year 2027-2028. If rents are increased to the proposed 5% level over the same five-year period, the mobile home parks are projected to have a negative annual cash flow of approximately $162,599 during Fiscal Year 2023-2024, but will realize a positive annual cash flow of approximately $39,472 starting in Fiscal Year 2027-2028. 

Staff is recommending a five-year five percent (5%) annual rent increase at the Authority owned View Park Estates and Park La Habra Mobile Homes, with the first rent increase taking effect on January 1, 2024, and the last rent increase taking effect on January 1, 2028. Staff will continue to monitor the cost of operations and rent increases to ensure that rent adjustments are proposed in the future to keep pace with expenses until the COPs are paid in full, which will then reduce operating and capital expenses by approximately $750,000 per year. 

The tables below show projected annual cash flows with and without a rent increase. These projections are further detailed in Attachments 6 and 7. Attachment 6 assumes that there are no rent increases and Attachment 7 assumes a 5% annual increase, each year for five consecutive years. The revenue projections that include a rent increase assume that approximately 30 percent of residents will qualify to receive a subsidy to help partially off-set the rent increase through a proposed financial assistance program, as described below.  

Proposed Financial Assistance Program

• Low-income households: A household whose income is 80% below the Area Median Income, will receive a 25% reduction in the rent increase (actual rent increase would be 3.75%) 
• Very low-income households: A household whose income is 60% below the Area Median Income, will receive a 50% reduction in the rent increase (actual rent increase would be 2.50%)
• Extremely low-income households: A household whose income is 30% below the Area Median Income, will receive a 75% reduction in the rent increase (actual rent increase would be 1.25%)

Community Meetings

On Wednesday, May 24, 2023 a Community meeting was held at Park La Habra to discuss potential rent increases with residents.  A second meeting was held on Thursday, May 25, 2023 at View Park Estates. A total of approximately 70 residents attended the two Community Meetings. The combined number of unit spaces in the two mobile home parks is 250. Staff presented the proposed 5% rent increase to residents, as well as the proposed financial assistance program. Staff noted that in order to qualify for financial assistance, residents must be in compliance with park rules and regulations, including upkeep of their mobile homes. 

Some residents were concerned that missing skirting, need for exterior paint and other maintenance issues might prevent them from qualifying for the financial assistance program. Staff provided information about the City's Residential Rehabilitation Program, which helps fund maintenance and repairs; as well as the City's "Love La Habra" event, that provides volunteers that may assist homeowners with minor repairs and routine maintenance. These programs are potential options for homeowners to resolve issues that could impact program eligibility. Staff also indicated that, as long as all other Park Rules and Regulations were in compliance, residents could add their names to the waitlist for property improvement assistance programs. Once on the list, staff would not consider routine or minor maintenance issues such as paint, skirting repair and other general upkeep as reasons why residents could not qualify for the financial assistance programs, as long as all other program requirements were met.
 

If the proposed multi-year rent increase is approved, park management is required to provide 90-day notices before rents can be increased. Staff is recommending that rent increases go into effect on January 1, 2024, and then each January 1 thereafter, with the final rent increase taking effect on January 1, 2028.  No changes to existing leases will be necessary in order to increase the rents. In addition, any new tenants that are still under the first year of their lease would not be subject to the new rent increases until their initial first-year lease terms expire.
 

In order to keep pace with market rents, starting on July 1, 2023, property management increased the rent for new move-in tenants. Space rents for new move-ins in View Park are now $1,150 per month and new move-ins in Park La Habra have rents set at $1,100 per month.

The additional revenues generated from the proposed 5% rent increase, even after adjusting for the reduced rent increases provided to those residents that qualify for the proposed financial assistance program, will reduce the current projected negative annual cash flow at the Authority's two mobile home parks. Staff estimates that by the final year of the proposed rent increases, the Authority's annual cash flow will go from a negative of $162,599 at the end of Fiscal Year 2023-2024 to a positive of $39,472 at the end of Fiscal Year 2027-2028. If no rent increase is approved, the estimated negative annual cash flow is projected to continue to increase from $276,664 at the end of Fiscal Year 2023-2024 to $558,167 at the end of Fiscal Year 2027-2028.

The proposed rent increases are consistent with the following areas of the General Plan:
H.2.10 - Preservation of Affordable Housing
H.3.3 - Support and Participate in Housing Programs

It is also consistent with the following City Council FY 23/24 Goals and Objectives:
Goal 2 Objective A - Closely monitor revenues, expenditures, and fiscal trends to ensure the City's long-term fiscal stability