DOWNTOWN HOUSING INVESTMENT STRATEGY 2008-2011 Adopted May 6, 2008 Downtown Housing Investment Strategy 1 OVERVIEW The Downtown Housing Investment Strategy establishes priorities to guide the expenditure of downtown housing set-aside funds over the next three years (2008- 2011). The strategy reinforces the Redevelopment Agency and City Economic Development Department revitalization efforts to foster a vibrant, livable downtown while offering enhanced economic and lifestyle opportunities. BACKGROUND Downtown Housing Investment Strategy Workshop In May 2007, a workshop was held for the City Council to review and discuss the downtown housing market, demographics, and income trends. Agency staff applied Brookings Institution research, “Who Lives Downtown?” to downtown Sacramento to help understand patterns of a successful downtown and to further guide investment decisions. A key finding of the workshop was recognition of the linkage between economic development and housing development. Nationally, housing development has gone hand-in-hand with commercial, retail, and office development to create the synergies found in successfully revitalized downtowns. Using the Brookings’ Institution study as a reference point, staff presented housing investment strategy recommendations based on the following guiding principles: A successful strategy will promote a downtown where: . Households at all income levels can live . Private market is thriving . Homeownership levels are increasing . Existing affordability has safeguards The Brookings’ Institution study suggested that a successful housing investment strategy creates a “virtuous circle” where mixed-income development spurs marketrate development and market-rate development generates tax increment to fund affordable housing. STRATEGY GOALS (2008-2011) The four major goals of the Downtown Housing investment Strategy include: 1. Alleviate impediments and create incentives to foster downtown housing. 2. Encourage mixed-income housing in the downtown core. 3. Safeguard existing affordable housing. 4. Maintain commitment to the Single Room Occupancy Strategy. Downtown Housing Investment Strategy 2 IMPLEMENTATION 1. Alleviate impediments and create incentives to foster downtown housing. This strategy goal recognizes that residential development in the downtown can be more complex and costly due to many factors including: land assembly difficulties; higher land costs; site constraints; environmental issues and infrastructure costs. To offset these development impediments, the City Economic Development Department is working on the following incentive tools to foster downtown housing development: . Impact Fee Deferral Program The creation of a City Impact Fee Deferral Program is proposed which will be utilized by projects located in the Downtown Redevelopment Area. The intent of the program is to provide cost savings to development projects by deferring certain development impact fees. City staff costs would not be eligible for deferral. Under the proposed program, instead of paying fees at the start of development, fees could be deferred until the certificate of occupancy. For downtown housing developments, where fees can be high because of the cost of construction, this incentive may promote increased developer interest. Fee deferrals can address some up-front project costs by allowing developers to put more of their initial funding toward construction. Some of the typical impact fees that could be deferred are: . Electricity and gas service connection fees . Sewer connection and impact fees . Storm drainage fees . Water connection and impact fees . Special district fees The proposed City Impact Fee Deferral Program would be applicable to marketrate, mixed-income and affordable housing developments in the Downtown Redevelopment Area. . Infrastructure Study Funding has been secured for an infrastructure study for the core of the Downtown Redevelopment Area. The study will commence in 2008 and be complete by 2009. The infrastructure study is designed to provide the development community with information critical for planning and implementing projects in the downtown, an area where infrastructure challenges are often faced. This study will provide developers with a better understanding of infrastructure cost uncertainties associated with developing urban infill properties. Downtown Housing Investment Strategy 3 . MATRIX Team The City can act as a catalyst to assist projects by offering enhanced coordination for downtown housing projects by using a cross-departmental MATRIX team. MATRIX is a new approach to the development process based upon development type or product. Each team is made up of City staff vital to the development of a project, from conception to completion, with a timely, seamless, and predictable development review process. Strategy Goal #1 Action Summary A. Infrastructure Study for the core of the Downtown Redevelopment Area. B. Development of City Impact Fee Deferral Program for downtown housing developments. 2. Encourage mixed-income housing in the downtown core. The Central City has seen the success of several urban infill mixed-use/mixed-income projects such as 1801 L, 800 J Lofts, Fremont Building, St. Anton Building and Fremont Mews which have contributed to the revitalization of the Central City. However, with the notable exception of the 800 J Lofts, successful higher density housing projects have occurred on the periphery of Sacramento’s downtown core. The success of mixed-use/mixed-income housing in the Central City suggests that the next step is to replicate this investment strategy in the downtown core, particularly in the JKL Corridor. To further revitalization efforts in the downtown core, the Agency recommends the release of a $25 million Notice of Funding Availability (NOFA). The NOFA would seek qualified developers experienced in urban infill projects for the development of mixedincome housing in the Downtown Redevelopment Area. The NOFA would be funded by downtown housing set-aside funds. Eligible NOFA project types and sizes: . Rental or ownership housing – mixed-use, live/work, loft, adaptive re-use or other types of unique urban housing . New construction (30 units or more) . Rehabilitation (30 units or more) . Adaptive reuse - conversion of buildings to residential use (30 units or more) Priority NOFA projects will include: . Mix of market-rate and affordable housing units . Located in the JKL Corridor . Mixed-use (contains both residential and non-residential space) . Superior sustainable urban design . 100 (+) residential housing units Downtown Housing Investment Strategy 4 This strategy goal is consistent with the City’s 2030 General Plan Vision and Guiding Principles and proposed Housing Element Strategies (2008-2013) of promoting innovative infill housing opportunities and sustainable building methods for complete neighborhoods and balanced communities. Strategy Goal #2 Action Summary A. Release of a $25 million Notice of Funding Availability (NOFA) for the development of mixed-income housing within the Merged Downtown Redevelopment Project Area, with priority to projects located in the JKL Corridor. 3. Safeguard existing affordable housing. Rent-regulated affordable housing is an integral part of the downtown, with 1,068 affordable multifamily units and 188 public housing units in the redevelopment area. Older downtown affordable housing projects are in need of refinancing and repair to ensure the health and safety of the buildings and to extend expiring affordability restrictions. The cost to replace existing affordable units would far outweigh the cost of preventive measures. Preservation of downtown affordable housing stock should always be safeguarded to ensure these units continue to serve low-income tenants. Under this investment strategy goal, projects like Riverview Plaza and Pioneer Towers would be eligible for funding assistance (outside of the NOFA process) to ensure longterm viability and continuance of rent-regulated downtown housing. Riverview Plaza is a sixteen-story residential and commercial mixed-use building located at 600 I Street. The residential portion consists of 123 one-bedroom apartments rented to low- and very-low income seniors and one manager’s unit. Frequent building maintenance problems led the owner to hire an architectural and engineering firm to conduct a physical needs assessment in 2006. The firm’s report indicated that certain items, primarily involving the exterior shell of the building, should immediately be repaired and other items, primarily involving interior systems, should be maintained or upgraded in the near future. The Riverview Plaza project is in immediate need of funding to stop water intrusion through the exterior of the building and replacement of the Fire, Life and Safety Evacuation System. Pioneer Towers is a twelve-story, age-restricted apartment building located at 515 P Street. With a total of 198 units, this building was constructed in 1978. Currently, 145 units are affordable and subsidized by a Section 8 contract and 43 units are unrestricted market-rate units. Recently, the owner conducted a comprehensive needs assessment which found many immediate needs to ensure the long term integrity of the property. The owner has approached the Agency with a request for gap financing for the rehabilitation. Strategy Goal #3 Action Summary A. Provide assistance on a project by project basis to safeguard existing affordable housing in the downtown. Downtown Housing Investment Strategy 5 4. Maintain commitment to the Single Room Occupancy Strategy. In 2006, the City Council approved the Single Room Occupancy (SRO) Preservation and Replacement Strategy. The strategy aims to rehabilitate 100 SRO residential hotel units and stimulate construction of 200 new efficiency units with a budget allocation of $15 million of downtown tax increment. In addition, Council amended the Residential Hotel Ordinance to add additional relocation benefits for tenants displaced by closure of an existing downtown residential hotel. The Council also adopted a no net loss policy to maintain 712 downtown residential hotel units and a requirement to rebuild the SRO inventory to 1,013 units city-wide. To date, expenditures toward the SRO Strategy include: . Over $6 million has been allocated toward the acquisition and operating subsidy of the Hotel Berry which was purchased in December 2007. Agency staff is working with the developer on the property’s rehabilitation, which would be funded with federal low income housing tax credits. The Hotel Berry will provide 104 rehabilitated SRO units to serve very-low and extremely-low income tenants. . $3 million has been allocated to the YWCA for rehabilitation of 31 units. Eleven units will be set-aside for individuals who are chronically homeless and have a mental disability. Strategy Goal #4 Action Summary A. Maintain commitment to SRO Strategy by funding the potential projects: i) 7th & H Street - 160 new efficiency apartments ii) Ridgeway Hotel – Rehabilitation of 58 residential hotel units iii) East End Gateway 5 – New efficiency apartments