118-14907-002                                                                                 Agenda Item No. 4 ( j )

March 23, 2007                                                                                 Meeting of April 3, 2007

MEMORANDUM

TO:                  Agency Commissioners

FROM:            Marcia Rosen, Executive Director

SUBJECT:       Authorizing the issuance, sale and delivery of tax exempt Multifamily Housing Mortgage Revenue Bonds (Tenth and Mission Family Housing) 2007 in an aggregate principal amount not to exceed $37,650,000; determining and prescribing certain related matters; approving and authorizing related actions and the execution and delivery of related documents to finance the construction of residential facilities known as Tenth and Mission Family Housing; Mid-Market Redevelopment Survey Area, Agency Citywide Tax Increment Housing Program.

EXECUTIVE SUMMARY

Mercy Housing California XIV, a California limited partnership (“MHC XIV”), an affiliate of Mercy Housing California (“MHC”), is developing 136 units of affordable family housing plus one manager’s unit, including 43 units set aside for formerly chronically homeless families (the “Project”).  There will be a youth center and retail space on the ground floor.  Catholic Charities CYO will operate the youth center and provide services to the residents of the building.  Directly adjacent to this Project, Mercy Housing California XXXIV, a California limited partnership (“MHC XXXIV”), another affiliate of MHC, is also developing 107 units of affordable senior housing including 27 units for formerly homeless seniors (the “Senior Project”).  The Agency owns both sites.

On March 16, 2004 the Agency approved a predevelopment and acquisition grant and loan for the Senior and Family Projects (the “Projects”), respectively.  On March 31, 2005, pursuant to Commission authorization on March 15, 2005, the Agency acquired the Block 3508, Lots 53 and 54, formerly Lots 51, 26 and 27 (the “Site”), which will eventually house the Project (Lot 53) and the Senior Project (Lot 54) and entered into Options to Ground Lease these sites with MHC XIV and MHC for the Senior Project.  On October 4, 2005, Commission approved the schematic designs of the Project and the Senior Project as well as a tax increment loan to MHC XIV in an amount not to exceed $25,258,383 (for a total aggregate amount not to exceed $26,824,338) needed for development of the Project.  Both the Project and the Senior Project also rely upon the Agency’s issuance of tax-exempt mortgage revenue bonds and an allocation of 4% low income housing tax credits to finance development costs.   On October 3, 2006 Commission approved resolutions expressing its intent to issue bonds for both the Project and the Senior Project.  On that date Commission also approved a loan to MHC XXXIV in an amount not to exceed $18,179,038 for the development of the Senior Project. 

MHC XIV is now requesting that the Agency approve a resolution authorizing the issuance, sale and delivery of multifamily housing mortgage revenue bonds in an amount not to exceed $37,650,000 for the development of the Project.  Staff anticipates that approval of this request is the final Commission action necessary prior to the start of construction of the Project in June of this year.

Staff recommends authorizing the issuance, sale and delivery of Multifamily Housing Mortgage Revenue Bonds(Tenth and Mission Family Housing)2007 in an aggregate principal amount not to exceed $37,650,000; determining and prescribing certain related matters; approving and authorizing related actions and the execution and delivery of related documents to finance the construction of residential facilities known as Tenth and Mission Family Housing; Mid-Market Redevelopment Survey Area, Agency Citywide Tax Increment Housing Program.

DISCUSSION

Background

The Project and the Senior Project will be an important addition to the continuum of housing and services available to San Francisco’s very low-income families and seniors, as well as a benefit to the community as a whole.  The Projects will be the first newly-constructed affordable developments within the Mid-Market Redevelopment Survey Area and will eliminate blighting conditions on two underused land parcels.  The youth activities center and retail at the Project will enhance the neighborhood services for current and future residents.  The Site is easily accessible to mass transportation, schools and other important services which make the Project an ideal location for housing formerly homeless households as well as very low-income households.  The Project and the Senior Project are also required by the Planning Code to create public artwork, at a cost equal to one percent of construction costs, at this Site.  MHC is planning an art competition to select the artwork for each Project.

History

On January 1, 2001, MHC, through its affiliates, entered into a purchase agreement to acquire the property located at 10^th and Mission and 9^th and Jessie Streets (the “Site”) with the plan to construct two projects: the 136 unit Family Project and the 107 unit Senior Project.  The Senior and Family Projects are being developed and funded separately.

On April 6, 2001, the Mayor’s Office of Housing (“MOH”) approved a predevelopment loan and grant for the proposed Senior and Family Projects to be developed on the Site.  This funding was used for lease payments, due diligence research, and architectural costs. 

On March 16, 2004, the Agency Commission approved a predevelopment and acquisition tax increment loan for the Project in an amount not to exceed $7,865,955.  At this meeting, the Commission also approved a predevelopment and acquisition tax increment grant for the adjacent proposed Senior Project in an amount not to exceed $3,572,214.  Authorization of these funds allowed MHC to exercise its option to purchase the property located at 10^th and Mission and 9^th & Jessie Streets and to complete predevelopment activities regarding the proposed Project, including design review of the Project by Agency Architecture and Housing staff and staff of the City and County of San Francisco Planning Department (“Planning Department”).  This design review process resulted in a significant redesign of the Project.  On January 18, 2005, the Commission approved the revised Schedule of Performance reflecting the time for the redesign process. 

On March 15, 2005, the Agency Commission approved an Option to Ground Lease and a Ground Lease for both the Project and the Senior Project, along with amendments to the acquisition and predevelopment loan for the Family Project and acquisition and predevelopment grant, for the Senior Project.  The loan and grant amendments reduced the respective loan and grant by the amount needed to acquire the Site.  The Agency then used those funds to acquire the Site.  On March 31, 2005, the Agency acquired the Site through an assignment and assumption of MHC’s option to purchase the Site.  On that date, the MHC also executed the Options to Ground Lease (one for the Project and one for the Senior Project) the Site from the Agency. 

On October 4, 2005, after a collaborative design review process with Agency staff, the Commission approved the schematic design of the Project and the Senior Project.  Additionally, on October 4, 2005, the Commission authorized $25,258,383 in a tax increment loan to MHC XIV needed for development of the Project.  The Agency also entered into a Ground Lease with MHC XIV on October 4, 2004.

On October 3, 2006 the Commission approved resolutions expressing its intent to issue bonds for both the Project and the Senior Project.  On that date, the Commission also approved a loan to MHC XXXIV in an amount not to exceed $18,179,038 for the development of the Senior Project.

MHC has made significant progress on the schedule of performance for the Project.  MHC has also secured financing from the State of California Housing and Community Development Department’s Multifamily Housing Program (“MHP”), a tax exempt bond allocation from the California Debt Limit Allocation Committee and a commitment from Union Bank for private placement of the bonds at a 5.15% interest rate, and a Tax Credit Allocation from the California Tax Credit Allocation Committee along with an investor commitment from Apollo Housing Capital.  MHC and the development team have also completed design development and the construction drawings for the Project, and Cahill Contractors has provided a guaranteed maximum price, which is higher than anticipated at the time of the last Commission action by over $3,500,000.  This price reflects two rounds of value engineering, one after the completion of the design, and one after bids were received from subcontractors which reduced Project costs by over $2,000,000.  To finance the remaining increased costs of approximately $1,500,000, MHC has secured more funding from non-Agency/MOH sources for the Project than was initially anticipated. 

Project Financing

The total development cost of the Project is $74,868,990, including the Agency’s land purchase.  The Agency has contributed a tax increment loan of $26,924,338, and purchased the land at the site for $6,300,000.  Other financing for the Project includes the Tax Exempt Multifamily Housing Mortgage Revenue Bonds in the amount of $37,650,000 (during construction only), over $28,000,000 in 4% Low-Income Housing Tax Credit equity, $680,000 in Affordable Housing Program funds, and an MHP loan of $10,500,000.  The tax credit investor commitment secured by MHC, at $1.10 per credit, has a higher yield than was originally anticipated.  Also, MHC has secured a grant from the U.S. Department of Housing and Urban Development (“HUD”) Economic Development Initiative of approximately $247,000.  In total, the Agency’s subsidy leverages over $39,000,000 in non-City sources.  The Agency ownership of the land coupled with the 99 year affordability restriction on the land ensures that the maximum benefit will be derived from the Agency’s subsidy. 

The Project is part of the City’s new Local Operating Subsidy program, which provides an operating subsidy to projects serving formerly homeless households from either the City’s Human Services Agency (“HSA”) or Department of Public Health.  This subsidy is set at a level that will fund the difference between the tenant’s rent for the formerly chronically homeless residents (set at between 30% and 50% of household income) and the operating costs for their units.  HSA will be providing this subsidy to the Project, and HSA will also be providing services funding for the Project.

Bond Issuance Request

The proposed issuance resolution would authorize the Agency’s issuance, sale and delivery of $37,650,000 in tax-exempt Multifamily Housing Mortgage Revenue Bonds.  Union Bank of California has committed to purchasing the tax exempt bonds and providing a construction loan of $37,650,000. The rate has been locked at 5.15% for the entire term of the construction loan.  The entire construction loan will be repaid with tax credit equity and MHP funds. 

Community Review

The Mid-Market Project Area Committee has been kept informed about the Projects and is generally supportive.  Since the redesign of the Projects, MHC has met with representatives of the Friends Meeting House, San Francisco Furniture Mart, Solomon ETC, the South of Market Leadership Council, the San Francisco Housing Action Coalition, and other immediate neighbors and has received favorable responses regarding the Projects.  Mercy held a community meeting in February 2006 to present the current design and program.  MHC presented the Schematic Design of the Project to the Mid Market Project Area Committee (“PAC”) on September 14, 2005 and has provided updates on funding awards in the last year.  Mercy will continue communicating with the PAC, area property owners, and occupants throughout the development and construction process. 

The San Francisco Furniture Mart (the “Mart”) which had been supportive of the Project since Mercy first informed them of its plans, recently expressed concerns to MHC and the San Francisco Department of Public Works (“DPW”) regarding MHC’s plan to widen the Jessie Street south sidewalk to conform to City requirements and thereby narrowing the driving width of Jessie Street.  The Mart is concerned that any widening of the current substandard sidewalk on the south side of Jessie Street will impair or prohibit longer trucks from turning from 10^th Street into Jessie Street to reach the Mart’s loading docks.  Additionally, the Mart is concerned about the trucks’ ability to back in and out of the loading docks. MHC, Agency staff, DPW, and the Mayor’s Office are discussing possible alternatives with the Mart.    

Response to Commissioners’ Questions

During the October 3, 2006 Commission meeting, the Commission asked several questions regarding the salary range for the managers of the Project and the Senior Project.  The Projects will be operated by MHC’s property management affiliate, Mercy Services Corporation (“MSC”).  MSC staff anticipate the salary range for the property managers for the sites will be between $43,843 (entry point) to $56,996 (mid point).  For planning purposes, MSC has budgeted $54,000 for these positions.  Recruitment for these positions is anticipated to begin in late 2008-2009.

To locate appropriate candidates for these positions MSC will outreach to local employment agencies and web sites including:

• San Francisco’s First Source Hiring Program;
• City College Web site;
• Supportive Housing Employment Collaborative;
• South of Market Employment Center;
• Mission Hiring Hall
• Craigslist;
• Association of Housing Management Agents;
• Career Builder;
• Monster.Com; and
• Mercy Services Corporation’s web site.

Future Commission Actions

In mid-2007, staff anticipates returning to the Commission for authorization of a bond issuance resolution for the Senior Project.

Marketing

The marketing of the units set aside in the Project for formerly chronically homeless households will be done through HSA access sites.  The remainder of the units will be in accordance with Agency and other funder regulations.  Certificate of Preference holders will be prioritized.  Agency staff will review the marketing plan for the Project prior to the start of the lease-up process to ensure compliance with Agency requirements.

COMPLIANCE WITH AGENCY PURCHASING POLICY:

MHC will continue to work with the Agency’s Compliance staff to ensure that all activities are in compliance with Agency Purchasing Policies and Procedures.

Staff recommends authorizing the issuance, sale and delivery of Multifamily Housing Mortgage Revenue Bonds(Tenth and Mission Family Housing)2007 in an aggregate principal amount not to exceed $37,650,000; determining and prescribing certain related matters; approving and authorizing related actions and the execution and delivery of related documents to finance the construction of residential facilities known as Tenth and Mission Family Housing; Mid-Market Redevelopment Survey Area, Agency Citywide Tax Increment Housing Program.

(Originated by Elizabeth Colomello, Development Specialist)

Marcia Rosen

Executive Director

MEMORANDUM

TO:                 Agency Commissioners

FROM:           Marcia Rosen, Executive Director

SUBJECT:     Conditionally approving the combined basic concept and schematic design for a 129-unit, mixed-income residential project on Block N4/Parcel 3 in the Mission Bay North Redevelopment Project Area, pursuant to the owner participation agreement with FOCIL-MB, LLC and adopting environmental findings pursuant to the California Environmental Quality Act; Mission Bay North Redevelopment Project Area

EXECUTIVE SUMMARY

In accordance with the Agency’s Mission Bay North Owner Participation Agreement (“OPA”) with FOCIL-MB, Em Johnson Interest (“Em Johnson”) has submitted a combined Basic Concept and Schematic Design (“Schematic Design”) for a mixed-income residential project on Block N4/Parcel 3 in Mission Bay North.  The parcel is located between Berry Street and the I-280 off-ramp, west of 5^th Street.  This project was anticipated by the Major Phase development program for Blocks N3, N3a, N4 and N4a approved by the Agency Commission on September 15, 2000 (Resolution No. 148-2000). 

The project is being developed in part to fulfill FOCIL-MB’s affordable housing obligation under the OPA.  It will contain a total of 129 for-sale condominium units, consisting of 49 market rate units along with 80 below market rate (“BMR”) units available to households earning up to100 percent of area median income.  The proposed building reflects a modern architectural design, responding well to both the residential corridor along Berry Street and the I-280 off-ramp at the rear of the project.  The Mission Bay Citizens Advisory Committee (“CAC”) reviewed the project at its February 8, 2007 meeting and expressed strong support for the attractive design, particularly its use of color and intelligent response to a challenging site. 

Staff recommends adoption of environmental findings pursuant to the Environmental Quality Act and approval of the combined Basic Concept and Schematic Design for Block N4/Parcel 3 subject to the conditions contained in this memorandum.

DISCUSSION

Blocks N3, N3a, N4, and N4a Approved Major Phase

The Mission Bay North Owner Participation Agreement between the Agency and FOCIL-MB establishes the protocols for development approvals in Mission Bay North.  FOCIL-MB is required to submit its overall plans for development in “Major Phases” of one or more land use blocks, with each Major Phase consisting of the private development projects and related public improvements on these blocks.  Designs for individual building projects can be submitted following the Major Phase approval, and must be consistent with the requirements established for each Major Phase.  On September 15, 2000, the Commission approved the Major Phase application for Blocks N3/N3a and N4/N4a in Mission Bay North (Resolution 148-2000). The approved Major Phase provides for the development of 1,815 residential units and up to 70,000 square feet of ground floor retail uses.

Block N3/Parcel 2 Schematic Design

As permitted under the OPA, FOCIL-MB entered into an agreement with Em Johnson to develop the Block N4/Parcel 3 project.  Em Johnson is a San Francisco-based real estate developer that is currently developing the Fillmore Heritage Center in the Western Addition.  This is Em Johnson’s first project in Mission Bay.  The building architect is Kwan Henmi Architecture/Planning Inc.

Block N4/Parcel 3 is approximately 41,170 square feet (.94 acres).  The parcel is bounded by Berry Street to the south and the I-280 off-ramp to the north (see Attachment 1).  It abuts an Agency affordable housing parcel to the east (Block N4/Parcel 2), which is being developed in partnership with Bridge Regional Partners, Inc.  As indicated in the site plan (Attachment 2), the site has a triangular shape, with a slightly curved property line to the north. 

The project contains 129 for-sale residential units, including 80 below market rate (BMR) affordable units (see more discussion about the affordable housing component of the project below).  The project also includes related parking and open space all within a 5-story building.  The units are a mix of one- and two-bedroom units, with one three-bedroom unit.  The units range in size from approximately 700 square feet to 1,250 square feet.  The building has a height of 50 feet, with several higher architectural details to add visual interest and mask mechanical equipment.

The project presents a cohesive, modern design while responding to two very different contexts: the residential corridor along Berry Street and the more industrial context along the I-280 off-ramp at the rear of the project.  The Berry Street façade is broken into a series of square panels, bays, and balconies that together help break down the massing and present a distinctly residential character, as seen in Attachment 4.  The design reads as light and playful despite the significant length of the façade.  In addition, there are nine townhomes along Berry Street that have direct entries from Berry, helping to activate this pedestrian-oriented, residential street.  The townhomes also conceal an on-grade interior parking structure. The building’s primary entrance is on Berry Street, adjacent to a community room and shared open space that helps create activity and transparency at the ground level.  The materials on this façade include a green colored cement plaster, windows with a slight blue tint and a silver metal grid system framing the windows and panels. 

The neighborhood context changes dramatically along the project’s northern façade, abutting the I-280 off-ramp.  The building responds to this more industrial frontage with a distinct change in materials and design.  The north side of the building is protected from the freeway with a corrugated metal “skin” to buffer the noise of the off-ramp and resist dirt accumulation.  The metal skin curves along the arc of the property, bending at the west corner and spiraling upwards to give the building a unique signpost at its western edge (see Attachment 5).  The metal is a rich red color.  The units along this façade have recessed balconies, with cut-out openings in the metal skin.  Most of the balconies appear to “peel” away, providing added interest and animation along this sweeping façade.  The project site plays an important role in the Mission Bay North; it will be highly visible from the freeway off-ramp, offering a first glimpse into Mission Bay.  The building design’s dramatic red curve on the northern façade will create a distinct and attractive first impression of the Mission Bay redevelopment area.

Open space areas for the residents are provided in a variety of ways.  There is a central landscaped podium courtyard located at the second level atop the interior parking garage and a shared gathering space off of the community room along Berry Street.  Many of the also units have private balconies. 

The project’s design successfully minimizes curb cuts on Berry Street by providing one parking garage entrance at the far west end of the project.  The Mission Bay North Design for Development allows a maximum of one parking space for every residential unit and requires one bicycle parking space for every 20 vehicular parking spaces.  In accordance with the standards, the project provides 88 vehicular parking spaces and 20 bicycle parking spaces, well beyond the bicycle parking requirement.  The project is in close proximity to local and regional transit.  The Muni N-line stop and Caltrain station are located three blocks from the parcel, and a Muni Third Street Light Rail Station is located two blocks to the east at Fourth and Berry Streets.

Citizens Advisory Committee

The Schematic Design for the project was presented to the Mission Bay Citizens Advisory Committee (“CAC”) on February 14, 2007. The CAC supported the design, particularly its modern sensibility and the use of color on the two primary façades.  It also commended the project’s intelligent response to the difficult conditions of the site, such as the use of the curved metal wall along the I-280 off-ramp.

Mission Bay Affordable Housing Development

The Mission Bay North and South Redevelopment Plans and OPAs with FOCIL-MB require that approximately 1,700 of the 6,000 housing units in Mission Bay be affordable to very
low-, low-, and moderate-income households.  Under the terms of the Mission Bay North OPA, at least 20% (580) of the up to 2,900 housing units in the North Plan Area will be affordable, developed through a combination of inclusionary rental and ownership units included in private development (as part of the Master Developer’s obligation), and through Agency sponsored nonprofit developers. The actual final number of BMR units will be significantly higher; currently, there are 753 affordable units either built, under construction or in the development pipeline in Mission Bay North. Of these, 211 are homeownership units, and 542 are rental units.  More information about the affordable housing supply in Mission Bay North is contained in Attachment 2.

As required by the Mission Bay North OPA, 80 of the inclusionary units provided by the Master Developer must be homeownership units available to moderate-income households earning up to 110 percent of area median income.  This obligation will be met by Em Johnson’s project on Block N4/Parcel 3, which will include 80 BMR condominium units permanently affordable to moderate-income households.  To qualify as moderate-income, a household of three can earn up to $90,310 per year.  A two-bedroom BMR unit in the project will cost approximately $280,000.

The affordable units in the project will be sold pursuant to the Agency’s Limited Equity Program (“LEP”) in order to ensure the units will be permanently affordable. The LEP establishes purchase prices (at initial sale and future resale) according to a formula based on area median income rather than market values. At resale, the price will be set at the same affordability level that established the original purchase price, regardless of the current market value. When the homeowner sells, equity will be based on change in area median income over time, plus any capital improvements made by the homeowner.  Agency certificate of preference holders will have priority in the selection process for the affordable units. 

Environmental Review

As part of its actions on September 17, 1998, establishing the Mission Bay Redevelopment Project Areas, the Redevelopment and Planning Commissions certified the Final Subsequent Environmental Impact Report (FSEIR), adopted findings under the California Environmental Quality Act (CEQA), adopted a series of mitigation measures, and established a comprehensive system for mitigation monitoring. The Board of Supervisors and various City departments adopted similar findings and mitigation monitoring plans.  This FSEIR includes by reference a number of addenda, including one addressing the possible environmental impacts of the UCSF specialty hospital proposed in Mission Bay.  Certain mitigations related to the Blocks N3, N3a, N4 and N4a Major Phase have been completed and other mitigations, such as traffic improvements, will be implemented through infrastructure construction and are conditions of the subdivision of the development blocks. 

Em Johnson is required to implement project-specific mitigation measures related to Block N4/Parcel 3 such as construction-related mitigations to minimize dust in the air. Em Johnson has committed in writing to implementing all relevant mitigation measures.  A list of these measures is on file with the Agency. 

MissionBayProgram in Diversity

Pursuant to the OPA, Em Johnson must comply with the Mission Bay Program in Diversity.  Em Johnson is working closely with Agency staff to meet the Agency’s Minority/Women-Owned Business Enterprise (“M/WBE”) professional services subcontracting goals of 20 percent for MBEs and 18 percent for WBEs.  Staff expects Em Johnson to meet these goals.  During construction, Em Johnson will be bound by the Program’s construction workforce requirements for construction subcontracting, workforce goals and payment of prevailing wages.

STAFF ANALYSIS AND RECOMMENDED CONDITIONS OF APPROVAL

Staff finds that the Block N4/Parcel 3 combined Basic Concept and Schematic Design submission complies with the Mission Bay North Redevelopment Plan, the Design for Development and other Plan documents.  With its modern and attractive design, the proposed project upholds the design principles contained in the Design for Development, and responds well to its site and adjacent uses.  In addition, the project will provide affordable homeownership opportunities for 80 moderate-income households.

As is typical, there are a few remaining design issues to be resolved in subsequent design stages, including the Design Development phase.  Staff recommends the approval of the Block N4/P3 Basic Concept and Schematic Design subject to the following conditions: 

1. The project’s colors, materials (in particular the corrugated metal), and finishes are subject to further review and approval by staff during the Design Development phase and in field mock-ups prior to construction. 

2. Landscaping details, including furnishings and paving materials, are subject to further review and approval by staff during the Design Development Phase.

3. The depth between the metal grid and the plaster panels on the Berry Street façade is subject to further review and approval by staff during the Design Development Phase.

4. Additional study of the ground floor unit entries and landscape treatments such as planters will occur during the Design Development phase.  The design goal is to create visual interest for pedestrians while maintaining the privacy and security of the ground floor units.

NEXT STEPS

Em Johnson anticipates breaking ground in December 2007 and completing construction within 18 months.

(Originated by Kelley Kahn, Assistant Project Manager)

Marcia Rosen

Executive Director

Attachments:

1. Affordable Housing in Mission Bay North (Table)
2. Block N4/Parcel 3, Site Plan
3. Block N4/Parcel 3, Floor Plan – Level 1
4. Block N4/Parcel 3, South Elevation (Berry Street)

1. Block N4/parcel 3, Aerial Perspective